Michigan property tax uncapping: what happens when you buy

What is taxable value, and why is it capped?

Michigan property taxes are calculated on taxable value, not market value. Since voters approved Proposal A in 1994, the Michigan Constitution has limited how fast taxable value can grow while the same owner holds the property. Each year it can rise by the rate of inflation or 5%, whichever is less, plus the value of any physical additions.

Three numbers appear on every assessment notice:

According to the Michigan State Tax Commission, the inflation rate multiplier for 2026 is 1.027, a 2.7% cap. It was 1.031 in 2025 and hit the 5% ceiling in 2023 and 2024.

In a rising market, the gap between SEV and taxable value grows every year someone keeps their property. That gap is the savings Proposal A provides, and it’s what disappears when the property changes hands.

What does “uncapping” mean?

When a property has a transfer of ownership, its taxable value is no longer limited by the cap. In the calendar year after the transfer, taxable value resets to equal the SEV. From then on, the cap starts again from the new, higher number.

Here’s a simple example. Say a house has an SEV of $150,000, but because the seller owned it for many years, its taxable value is only $80,000.

• The seller’s tax bill is based on $80,000.
• The buyer closes in 2026.
• For 2027, the taxable value uncaps to the 2027 SEV. If that’s still about $150,000, the buyer’s taxes are calculated on nearly twice the seller’s base.

This is why you should never budget from the seller’s tax bill. Ask the assessor, or look up the parcel’s SEV, before you buy.

What counts as a transfer of ownership?

Michigan law defines a transfer of ownership broadly: it’s “the conveyance of title to or present interest in property, including the beneficial use of the property.” The obvious cases are deeds and land contracts. Less obvious cases can include:

• Conveying property into a trust, unless an exception applies
• Changes in who controls an entity that owns the property, in some situations
• Leases that give the tenant the beneficial use of the property for long periods, in some situations

The Treasury Department’s Transfer of Ownership Guidelines walk through dozens of specific scenarios. If a deal uses an LLC, a trust, or a long-term lease, read them closely.

Which transfers don’t uncap the property?

State law (MCL 211.27a) lists transfers that are exempt from uncapping. The most common include:

• Transfers between spouses, or to add or remove a spouse
• Transfers to create or end a tenancy by the entireties
• Transfers into a trust where the settlor or settlor’s spouse is the sole present beneficiary
• Certain transfers of residential property to close family members, such as a parent to a child, if the property isn’t used for a commercial purpose afterward
• Certain transfers between entities under common control

Each exemption has conditions. The Property Transfer Affidavit lists them, and you claim one by checking the box. The assessor can ask for documents to support it.

How do you file the Property Transfer Affidavit?

The new owner files Form 2766, the Property Transfer Affidavit (also numbered L-4260), with the assessor for the city or township where the property is located. It’s due within 45 days of the transfer, even if the deed hasn’t been recorded and even if the transfer is exempt from uncapping.

Under MCL 211.27b, missing the deadline triggers a penalty. For residential property, it’s $5 per day, up to $200. Commercial and industrial property face higher penalties that scale with the sale price, and the current amounts are printed on the affidavit itself. The bigger risk is not filing at all. If the assessor later discovers a transfer that should have uncapped the property, the owner can be billed for every year of additional tax, plus interest and penalties. The owner can appeal that increase to the Michigan Tax Tribunal, but only on whether a transfer happened and whether the math is right, and only within 35 days of the notice.

What about the Principal Residence Exemption?

The Principal Residence Exemption (PRE) is separate from uncapping, but buyers often deal with both at closing. The PRE exempts a homeowner’s primary residence from up to 18 mills of school operating taxes. It does not move with the owner: when you buy, you file Form 2368, the PRE Affidavit, with the local assessor. A form filed by June 1 applies to that year’s summer and winter taxes. A form filed by November 1 applies to the winter taxes.

Investors and landlords should expect to pay the full school operating millage on rental property, which is another reason a seller’s bill can mislead a buyer.

What should buyers do before closing?

1. Look up the property’s current SEV and taxable value with the local assessor or the county’s online parcel search.
2. Estimate next year’s taxes using the SEV, not the seller’s taxable value.
3. Decide whether any exemption from uncapping applies, and gather the documents that support it.
4. File the Property Transfer Affidavit within 45 days of closing.
5. If the property will be your home, file the PRE Affidavit by the next June 1 or November 1 deadline.