Taxable Value, Assessed Value and the PRE

Because real property taxation issues make up a substantial portion of my practice, I am frequently asked questions about the relationship between the PRE (personal residence exemption)  and taxable value. Simply put, there is no relationship. Taxable value dictates the value against which the millage rate applies. The PRE eliminates that portion of the  millage rate that applies to the local school operations.

The tax base of a parcel is 50% of the taxable value. The assessed value of a parcel is 50% of the true cash value. True cash value should equate to the current market value of the parcel. The assessed valuation is adjusted yearly. The assessed value may be adjusted upward or downward year over year, as dictated by market conditions. There is no ceiling or floor to the year over year adjustment to the assessed value.

Taxable value, the tax base against which the millage rate is applied to generate the tax bill, may never exceed the assessed value of a property. However, in an appreciating market, taxable value will often be less than the assessed value. This is due to the enactment of Proposal A. (PA 1994 415). Prop A caps the increase of taxable value, year over year, to the lesser of the inflation rate or 1.05%. Again, in a rising market, this will necessarily create a difference in the taxable value and the assessed value. The net effect is that the tax bill is lower because the millage rate is applied to the taxable value and not the assessed value. The advantage is lost when the property is transferred. This lost tax advantaged is referred to as uncapping. At the time of a qualifying transfer, the taxable value is automatically adjusted to match the assessed value, irrespective of the percentage of the increase.

The PRE is a different creature altogether and has nothing to do with Prop A or taxable value.  The PRE applies only to residential property that serves as the primary home of the tax payer. A taxpayer must apply for the PRE.  If the PRE is granted, the applicable millage rate is reduced by the tax levied by a local school district for school operating purposes. In northern Michigan this often amounts to a millage rate reduction of 9.00 mills. For example a taxpayer who qualifies for a PRE on a  home that has a taxable value of $500,000. will save $4,500. annually under this scenario.

William Carey


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