Michigan Real Estate Purchase: Pro-Rated Taxes.
Pro-Rated Taxes: Oh, the agony! Nothing causes headaches the way pro-rated taxes do. What exactly are they? It’s your tax bill…and yes…it is YOUR tax bill. In most places in Michigan you get two bills for Property Taxes. One for winter and one for summer. In the vast majority of places, you pay these taxes in advance meaning you are paying in July for the tax bill between July of that year and July of next year; same for the winter bill Dec.-Dec. If you buy a house, let’s say in August, the seller has already paid for the taxes through July of next year. Even though they have paid through July, they will only own the home for one month covered under that bill and you will own it for the remainder of time covered by that bill. You will be required to reimburse them for the time that you will own the home- August through July for the summer bill and August through December for the winter bill.
How to calculate what you will have to pay. It’s no secret; you can calculate this yourself to check it. Take your closing date. Count the number of days from that day until December 1st. call this (a). Count the number of days from the closing day until July 1st. call this (b).
Now take your winter tax bill and divide by 365, take your summer tax bill and divide by 365. Then you have the daily amount of each tax bill. Multiply the days you have by the daily amount and you can come up with the two amounts. Add them together and this is the amount of pro-rated taxes you will have to pay.
EXAMPLE: You close January 15th. So you have 320 days until Dec. 1 and 166 days until July 1st.
The tax bills are winter: $565 divided by 365=$1.55 and summer: $1786 divided by 365=$4.89
320 days (a) x $1.55 = $496 and 166 days (b) x $4.89 = $811.74
$496+$811.74 = $1307.74 is your pro-rated tax bill.
Seems simple, why all the headaches? Well, with all of the foreclosure properties being bought now, there is rarely upfront truth about what the Property Taxes for your purchase are. Most times the MLS listing will reflect what the Property Taxes were before the bank took possession. When a bank owns a property they are unable to claim a Homestead Exemption like you and I. Think of the homestead exemption as a discount on taxes for you Primary Residence. The bank is not a resident, so they pay more. This also means that when you buy it from them, you pay more. Ask your Realtor upfront what the non-homestead tax amount is. This will help eliminate the possibility of a BIG surprise come closing time.
If you are still uneasy about whether the tax information provided is accurate or not, call the county tax assessor about the true tax amount you will be paying at closing time. Google: “county name” tax assessor to find the correct phone number.
How to calculate what you will have to pay. It’s no secret; you can calculate this yourself to check it. Take your closing date. Count the number of days from that day until December 1st. call this (a). Count the number of days from the closing day until July 1st. call this (b).
Now take your winter tax bill and divide by 365, take your summer tax bill and divide by 365. Then you have the daily amount of each tax bill. Multiply the days you have by the daily amount and you can come up with the two amounts. Add them together and this is the amount of pro-rated taxes you will have to pay.
EXAMPLE: You close January 15th. So you have 320 days until Dec. 1 and 166 days until July 1st.
The tax bills are winter: $565 divided by 365=$1.55 and summer: $1786 divided by 365=$4.89
320 days (a) x $1.55 = $496 and 166 days (b) x $4.89 = $811.74
$496+$811.74 = $1307.74 is your pro-rated tax bill.
Seems simple, why all the headaches? Well, with all of the foreclosure properties being bought now, there is rarely upfront truth about what the Property Taxes for your purchase are. Most times the MLS listing will reflect what the Property Taxes were before the bank took possession. When a bank owns a property they are unable to claim a Homestead Exemption like you and I. Think of the homestead exemption as a discount on taxes for you Primary Residence. The bank is not a resident, so they pay more. This also means that when you buy it from them, you pay more. Ask your Realtor upfront what the non-homestead tax amount is. This will help eliminate the possibility of a BIG surprise come closing time.
If you are still uneasy about whether the tax information provided is accurate or not, call the county tax assessor about the true tax amount you will be paying at closing time. Google: “county name” tax assessor to find the correct phone number.
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