Homestead vs non-homestead taxes in Michigan: the exemption, the cap and the jump

Two identical houses on the same street in Niles can carry tax bills that differ by close to two thousand dollars a year. One is somebody's home; the other is a rental or a second home. The difference is a single form, and in Michigan tax language it is called the principal residence exemption — the thing everyone still calls "homestead."

A second, separate mechanism explains why a buyer's bill often climbs the year after closing even when nobody's millage changed. This guide takes both apart. For how Michigan's system compares with Indiana's 1% cap, start with Michiana property taxes.

What "homestead" means on a Michigan tax bill

The principal residence exemption, or PRE, exempts an owner's principal residence from the local school operating millage, up to 18 mills. It does not touch county, township, city, library or school debt millages; it removes one levy, and that levy is large. The Department of Treasury is explicit that the PRE is different from the Homestead Property Tax Credit, which is an income-tax credit claimed on a state return.

"Principal residence" has a statutory meaning: the one place where the owner has a true, fixed and permanent home, to which they intend to return whenever absent. It includes adjoining unoccupied residential land the owner holds with it. A married couple filing jointly gets one exemption, not two.

What 18 mills costs in real money

A mill is $1 per $1,000 of taxable value, so 18 mills is $18 per $1,000. Taxable value can never exceed state equalized value, which is set at half of a property's true cash value. Using typical home values from the market report (through June 2026) as a rough stand-in for the assessor's figure:

• Niles, typical value $217K: SEV about $108,500; 18 mills is about $1,953 a year.
• St. Joseph, typical value $343K: SEV about $171,500; 18 mills is about $3,087 a year.

That is the gap between a homestead and a non-homestead bill once taxable value has caught up with SEV — illustrations, not quotes, since the exact school levy varies by district. It is also why lake cottages and rentals on the Michigan side carry visibly heavier bills than the owner-occupied house next door.

Two values on every parcel: SEV and taxable value

Since Proposal A in 1994, Michigan taxes a parcel on its taxable value, not its SEV. Each year taxable value may rise by no more than the lesser of 5% or the rate of inflation, plus additions such as new construction — and it can never exceed SEV. For 2026 the State Tax Commission set the inflation rate multiplier at 1.027, so a continuing owner's taxable value could rise at most 2.7% this year even where market values rose faster.

Hold a house long enough in a rising market and its taxable value drifts well below its SEV. That gap is the long-term owner's reward. It does not transfer to the buyer.

Uncapping: why the buyer's first full bill jumps

The General Property Tax Act says that after a transfer of ownership, the property's taxable value for the calendar year following the transfer is its state equalized value for that year. The cap comes off once; after that the new owner's taxable value is capped again until the next transfer.

A worked timeline: buy in August 2026. The summer 2026 and winter 2026 bills are still computed on the seller's capped taxable value. In 2027 the assessor resets taxable value to the 2027 SEV, and the summer 2027 bill is the first one on the new figure. On a long-held house, that summer bill can be the largest single surprise of the first year of ownership — and if the lender set up escrow from the seller's old bill, the monthly payment rises at the next escrow review as well. The first-year owner's guide covers the rest of that year.

Not every change of title counts. Since the end of 2014, a transfer of residential property to a parent, sibling, child, grandchild or other listed close relative does not uncap, provided it is not used for any commercial purpose afterward. Ask the assessor before assuming an exception applies.

Filing the exemption: deadlines that decide a year's bill

A buyer claims the PRE on Form 2368, filed with the city or township assessor where the house sits. The statute sets two dates: file by June 1 and the exemption applies from that summer's levy; file by November 1 and it applies from that winter's levy. Whoever prepares the closing statement is required to hand buyer and seller the affidavit and rescission forms at closing, and to file them if asked.

Meanwhile the seller's exemption status stays on the parcel until December 31 of the year of the transfer. If the seller had a PRE, the rest of that year's bills generally reflect it; if the seller was a landlord or second-home owner, they don't, and the buyer should file promptly.

For sellers: the rescission

Within 90 days of no longer using the house as a principal residence, the owner must file a rescission, Form 2602, with the assessor. Missing it carries a penalty of $5 a day after the 90 days, up to $200. An owner who has moved to a new principal residence and is trying to sell the old one can file a conditional rescission and keep the exemption for up to three tax years, as long as the old house is unoccupied, for sale, not leased and not used for business — verified each year by December 31.

The Property Transfer Affidavit: 45 days

The buyer must notify the local assessor of the transfer within 45 days, on the Property Transfer Affidavit, Form 2766. This is the form that tells the assessor to uncap. Skip it and the uncapping happens anyway, retroactively, with the additional taxes, interest and a penalty of $5 a day after the 45 days — capped at $200 for a principal residence and $4,000 for other property such as a second home. Whoever helps with the paperwork, the obligation is the buyer's.

Crossing the state line

Buyers moving from South Bend or Elkhart often still hold an Indiana homestead deduction on the house they're leaving. Michigan does not allow a PRE in any year in which the owner has claimed a substantially similar exemption, deduction or credit in another state, and claiming both carries a $500 penalty. Filing a resident income-tax return in another state also disqualifies. Line up the Indiana side before you file here; the Indiana homestead deduction guide covers that side.

When the Department of Treasury says no

Treasury can review an exemption for the current year and the three before it. A denial produces a corrected bill for the school millage with interest at 1.25% a month, and an owner has 35 days from the notice to appeal to the department. The usual causes are a second home claimed as a principal residence, a rental, or an exemption left in place after the owner moved. A buyer who purchases in good faith is protected from the seller's denied years — the statute bills the prior owner, not the new one.

Before you make an offer, pull the parcel from the county records: SEV, taxable value and PRE status are all public. Half the price times the local millage, minus the school mills if you'll live there, is a better estimate than the listing's tax line. If the assessment itself looks wrong, appealing it is an owner-run process. And if you're buying without an agent, evaluating the home should include this arithmetic — MichianaRealty.com™ publishes the town values that make the first estimate possible.

Frequently asked questions

What is the difference between homestead and non-homestead taxes in Michigan?

A homestead, officially a principal residence with the exemption on file, is exempt from the local school operating millage of up to 18 mills. Non-homestead property, such as a rental or second home, pays it. At 18 mills that is $18 for every $1,000 of taxable value — roughly $1,950 a year on a house with a taxable value of about $108,500.

Why did my property taxes go up after I bought my house in Michigan?

Because taxable value uncaps on a transfer of ownership. While the seller owned the house, its taxable value could rise only by the lesser of 5% or inflation each year. The calendar year after you buy, taxable value resets to the state equalized value, half of market value, and your first bill on that figure can be much higher than the seller's.

When do I have to file the principal residence exemption in Michigan?

File Form 2368 with the city or township assessor by June 1 to have the exemption apply from that summer's tax levy, or by November 1 for that winter's levy. The closing agent is required to give you the form at closing. Sellers must file a rescission within 90 days of no longer living in the house, or face a penalty of $5 a day up to $200.

How long do I have to file a property transfer affidavit in Michigan?

45 days from the transfer of ownership. The buyer files Form 2766 with the local assessor. If it is late, the assessor still uncaps the taxable value retroactively and bills the additional tax with interest, plus a penalty of $5 a day capped at $200 for a principal residence.

Can I claim a homestead exemption in both Michigan and Indiana?

No. Michigan denies the principal residence exemption for any year in which the owner claimed a substantially similar exemption, deduction or credit in another state, and imposes a $500 penalty on anyone who claims both. Filing a resident income tax return in another state also disqualifies the claim.