Detroit NEZ Tax Abatement

[tahleel]

Hi all,
As you may have read in my intro post, I own my home in the New Center area. I am looking to sell it, to move into a newer condo. Many of the condos I've been looking at have been built in the early 2000s. The taxes on these condos are affordable, for now. I am scared that in a few years, when the 12 year NEZ tax abatement for these properties end, I would no longer be able to afford them. Is there anything one could do to battle the higher taxes?

For example. I found a nice two bedroom condo, built in the late 90s. The taxes were once around $1100/year. Now they are close to $6000/year! That's $500/month + association dues! At that rate, I could rent an apartment, and have the flexibility to move whenever I pleased.

Has anyone had experience lowering their taxes? I feel that $1100/year for a small condo is fair, considering I pay LESS in taxes for my larger home.

Some other places I've looked at are newer built condos. They also are approved for the NEZ tax abatement. Yet, the property taxes are still high. What gives? Are they high because the builder still owns these condos? I might've read somewhere that the NEZ tax abatement only goes to the buyer who makes this their homestead. Or is it high because the city subsidizes the tax, and shows the full portion [[I'm looking at the bsasoftware site).

Also, I looked into my tax bill, and I noticed a $300 Solid Waste Fee. Is this simply for trash service? Has anyone NOT taken this service?

-Tahleel

[Novine]

The problem you are going to face is that even for properties with lowered values, Detroit's millage rate is still crushingly high. It can be twice the rate that people pay in the suburbs. Ironically, the new construction that has the NEZ designation is contributing to that problem because by limiting the property taxes on those properties, the burden of supplying services to those properties has been shifted to everyone outside the NEZ. Also, when you buy, that property value for the property you are buying is going to be adjusted. If it's far below the current market value, it may go up and if you're outside the NEZ, your property tax obligation goes up with it.

[tahleel]

Thanks Novine for the response.

Let's say I have this hypothetical property:

Built in 2002, and sold for $120K. It's a foreclosure, and has been on the market for $60K for the past year. I buy it for $28K.

It would only make sense that the SEV lowered to $14K [[half of the market price or sell price).

Would that be a possibility? How realistic is it that the SEV would follow the formula of half-of-market price?

Thanks

-Tahleel

[Det_ard]

Municipal assessors don't use the purchase price of your property. While it might seem logical to use it, there's the potential for some funny business that artificially lowers the official purchase price. So instead they use sales of comparable properties. If the comparable properties sold for $28K your assessment should reflect that. However, if comparable properties sold for $50K and you just got a super deal, expect a $50K assessment.

[Novine]

Agree 100% with Det_ard's explanation. What's the current SEV on the property? Even though the assessor should adjust down for market conditions, if the SEV is higher, you'll likely have to fight to get the assessment down even if comparable properties have sold for less.

[tahleel]

One no longer has the NEZ tax abatement. It has a SEV of $58K and has 2009 taxes of $4K! That's close to $330/month in just taxes! Its listed at $35K, its niec, but I doubt it would get that.

Another was just recently built in 2006. It is still owned by the developer. Price is $45K. SEV is $70K. 2009 taxes are $5K! If I buy this, would I be able to reap the NEZ tax benefits? I read an article where it said that it must be transferred within two year, its just past the two years. Does it mean two years after the buyer claims its a homestead and not the developer?

The last one I'm looking at still has the NEZ tax abatement. It has an SEV of $65K. 2009 taxes are $1200. Asking price is $60K. [[The one I mentioned in the last post). The millage rate now is close to 15. In a few years, I'm assuming the millage would jump to 75? Then taxes would be FIVE times as much, so $6000?!

-Tahleel

[LodgeDodger]

You're smart to ask these questions prior to making another purchase.

[Novine]

Once the NEZ break expires, I assume that the taxes will jump up to the rates that non-NEZ properties pay. I would expect that in advance of that, you'll get a lot of people pushing for some kind of extension or modification to that designation. But I wouldn't count on it. Detroit and the state need every tax dollar they can get. Check out this post, it has a contact name and number at the state for NEZ questions. Start by contacting them with your question about transferring the eligibility.

http://www.trulia.com/voices/Propert..._city_o-139989

[Mipade]

Perhaps the city of Detroit should give its citizens a little relief and start making the corporations operating in our city to pay their fare share for once!

[Detroit500]

Detroit City Tax Rates are absurd. We have reached the point where the crushingly high tax burden prevents new investment from coming into the city, so we have to have low tax rates for a small amount of time to persuade the few new businesses to come. Essentially it is a reverse Ponzi Scheme.

Detroit needs to figure out what they need to do to make their tax rates slightly lower than the suburbs, not nearly twice as high. For EVERYONE -- Businesses, Individuals, etc. Unlike say, New York City where there are borders which prevent people from easily mass-exiting to the suburbs, here it is very easily to just pick up and move to Pontiac, or decide to make your regional headquarters in Troy.

What does this mean? Probably cutting basically every single service that the city might not need, or having to resort to having more services be provided by the county, individual neighborhoods, etc. It probably also means cutting a lot of social programs, library spending, etc. etc.

For the long term, it is the only way to stimulate growth, fairly. Right now Michigan and the City of Detroit has a tax system which is too based on the government "picking" winners and losers in terms of companies, industries, etc. This needs to change.

[Detroitnerd]

Somebody has to pay taxes, right?

But here's how it works.

You can't tax the churches. They get to run tax-free enterprises, collect millions in donations and build ever-bigger churches. [[Their funding has kind of dried up, though, as the half-finished megachurches illustrate.)

Also, it's politically impossible to tax the big companies. We gotta throw tax abatement programs at them, give them money, spend on recofiguring the land to suit them, etc. As to whether they're "job-makers" or "wealth-creators" or just plain "parasites," that doesn't matter. The fact on the ground is that they don't have to pay. General Motors has had a lot of years when they haven't paid taxes, for instance.

We might be able to tax small businesses a bit, but their accountants are pretty clever, and they can cut their tax bill by, again, locating where we've given tax-abatement.

The other major employer is the city, which can't tax itself -- can it?

So, it falls onto the homeowners. Unless you're well-connected enough to have your appraisal "accidentally" adjusted so you don't have to pay them. Or, if you're rich enough, you can figure out ways to cut down the tax bill, perhaps by making "donations" to city "charities."

So, it falls upon the people least prepared to pay it. That means you, pal. What's the problem? Don't like it? Lump it. The most powerful people are not going to pay. Period. If you hate it, move. If you can stand it, you're a sucker. That's their attitude, I think.

If we all ran our families the way the city [[or, for that matter, the country) runs things, we'd have boss cars for the whole family, giveaways for mom and dad, presents for the older kids. The youngest kid would get the "tax bill." "Here you go, you gots to do your part, junior. We're all too important to this family to pay."

The kid would do what most people do in Detroit: Run away from home.

[Novine]

"Detroit needs to figure out what they need to do to make their tax rates slightly lower than the suburbs, not nearly twice as high. For EVERYONE -- Businesses, Individuals, etc."

Mission impossible Detroit500. Here is why. Homes in Detroit are worth about 1/5th to 1/10th what a typical home in the suburbs costs. A $20,000 home in Detroit is a $100,000 home in Hazel Park is a $250,000 home in Shelby Township is a $400,000 in Birmingham. For each tax dollar that is collected in a Shelby Township or Birmingham, Detroit has to have a tax rate 10 - 20 times that amount to collect the same dollar. Detroit also has a much greater need for service. In places like Birmingham or Shelby Township, you can get away with having a lot fewer police and firefighters and you don't have any of the social services that Detroit provides. To get Detroit city taxes down to the levels you talk about, you would have to lay off and shutdown almost the entire city government. We're not talking closing a few recreation centers or trimming staff, we're talking everything. Few cops, no firefighters and almost zero services. You'll have a tax rate as cheap as the suburbs and a city that absolutely no one would want to live in at any price.

[milesdriven]

When I purchased my house in Toledo last fall, the taxable value of my home was based on the purchase price. I pay about $1700 annually in taxes, and I purchased my home for 89K. Because of this system, many properties don't go to waste and rents are much more affordable as well. Until Detroit changes their asinine tax rates, many thousands of properties will go to waste and eventually be demolished with more taxpayer money. You can't squeeze blood from a stone.

[mwilbert]

When I purchased my house in Toledo last fall, the taxable value of my home was based on the purchase price. I pay about $1700 annually in taxes, and I purchased my home for 89K. Because of this system, many properties don't go to waste and rents are much more affordable as well. Until Detroit changes their asinine tax rates, many thousands of properties will go to waste and eventually be demolished with more taxpayer money. You can't squeeze blood from a stone.

The SEV system in use in Detroit is the normal Michigan system; it is not possible for Detroit to change it. I completely agree that the high property tax rates in Detroit are a huge obstacle to people buying property in the city, but the solution is probably not the adjusting the city tax system, but ruthless cutting of costs.

Novine is correct that the city just doesn't have the tax base per person that many other towns have, but his calculation about how deeply things would have to be cut is a bit pessimistic because of the differing levels of external aid Detroit received compared with other cities--in particular Detroit essentially pays nothing for its school system [[which is more or less what it is worth, but we already had a thread about that.)