  Billpdx Member Username: Billpdx Post Number: 16 Registered: 05-2006 |
I'm going to look at some homes for sale at the end of the week in Detroit. Can some explain to me what this NEZ tax break is all about? Does this mean I wouldn't necessarily have to pay 10-12k per year on property taxes (certainly a deal-breaker) on anything I might buy? | ||
Itsjeff Member Username: Itsjeff Post Number: 7045 Registered: 10-2003 |
NDavies knows this stuff really well. If he doesn't post here in a few days, I'll ping him for you. | ||
Barnesfoto Member Username: Barnesfoto Post Number: 2666 Registered: 10-2003 |
I'm no tax expert, but my experience is this: in certain areas you can file an NEZ to keep a property at the pre-rehab tax level. Let's say you buy a wreck of a house like I did. The taxable value is 12k. You put lots of money and work into the place and one day you're done and it's worth lots more than it was when you started. But if you have filed the paperwork and pulled all your permits, your tax level is capped at the old level. What this means for you, I think, is that you need to buy a new/rehabbed property that qualifies for NEZ, or buy a ruin that qualifies for NEZ. Bagley Housing Association is one of the many orgs that has a number of properties available, some are new construction, others are rehabs. There's lot more to it than what I know, but that's my two cents. | ||
Gildas Member Username: Gildas Post Number: 870 Registered: 12-2004 |
I think the city homepage has some information about which areas qualify for a property tax reduction. The amounts are from 18-35% depending on price, area, etc. Over in East English Village (EEV) when I live, we are getting a tax break in 2007, but it will be backdated to 2006. Other areas are going to be close to that. Be sure to look at EEV in you house hunting, good luck. | ||
Jt1 Member Username: Jt1 Post Number: 8061 Registered: 10-2003 |
A few things: When considering taxes consider the taxes you pay on the home you get. Yes, Detroit taxes are higher but you get much, much more home for your dollar in Detroit so comparing dollar to dollar is not a fair comparison. At 65 mills (68 minus 3 for the garbage) 10-12K would be for a home with an SEV of 154 to 185 or a real value of $308K to $370K. Compare what you get here for what you get elsewhere and the taxes will be represented much more honestly. Granted the services are not as good in some instances but I can assure you that $370K buys a hell of a lot more in Detroit than most of the nicer suburbs. There are also 2 NEZs: 1 is the new construction which is labeled as a 56% reduction but it is greater because I believe that it is a 56% reduction based upon the state average, not Detroit. The neighborhood NEZ is for (someone such as Gildas will probably know better) a reduction of about 20% so a safe assumption is about 52 mills as opposed to 65 mills. I do not want to say it is cheap to live in the city but I ask that you compare what you get for a comparable price before assuming taxes here compared to elsewhere. Think about what $200K gets you here ($6500 annual taxes) compared to what an equivalent house would cost you elsewhere, then figure out what the taxes would be on the likely 2-3 times the cost of the home. | ||
Track75 Member Username: Track75 Post Number: 2422 Registered: 10-2003 |
Barnesfoto, how does the rehab tax break work when the rehabbed house is sold? Does the low SEV transfer over the the new buyer or is it just for the owner of the property who pulled the permits and did the rehab? If the low SEV transfers over to the new buyer, how long can the original rehabber hold the property and still have the SEV transfer over? Could it be for several years? Thanks. | ||
Track75 Member Username: Track75 Post Number: 2423 Registered: 10-2003 |
Billpdx, for purposes of comparison and analysis you can look at the higher property taxes as an increase in the price of the house. For example, if the Detroit house's property tax is $12K (68 mills) and a similarly priced house in a lower tax area like Plymouth is 7$K (40 mills). That $5K difference per year equals $417/month. $417/month would be the payment on a $66K mortgage (at 6.5%, 30-year fixed). So if the house in question is $350K, the monthly cost due to higher city property tax is that of a $416K house. You can do the same with other incrementally higher annual costs (income tax, car & house insurance, and perhaps private/parochial tuition) to "capitalize" them into an equivalent house price. As a rough but close enough approximation, a $100K mortgage at 6% is roughly $600/month, at 6.5% is roughly $650/month and at 7% is roughly $700/month. As Jt1 notes, you'll still likely be looking at a much finer, larger house than in the comparison suburb. And you definitely want to check out the NEZ status of each detroit home you're considering, it makes a huge difference. You could also approach this by trying to find a comparable house in the 'burbs and comparing the actual ownership costs. This is just a way to get the financial part of the decision process simplified on an "apples-to-apples" basis. To complicate things a bit, remember that property taxes and income taxes are deductible just like mortgage interest payments. Insurance isn't and tuition may or may not be depending on how you fund it. You'd need to convert those to an equivalent pre-tax amount which would depend on your personal tax bracket. I didn't mention utilities because that might be similar or quite different in your comparison, it depends on the individual houses. Happy house hunting. | ||
Barnesfoto Member Username: Barnesfoto Post Number: 2668 Registered: 10-2003 |
QUOTE: how does the rehab tax break work when the rehabbed house is sold? Does the low SEV transfer over to the the new buyer... Track: Yes, the lower SEV transfers. So both for-profit and non-profit developers seem to be using this as a "carrot" on both new construction and rehab. | ||
Magnasco Member Username: Magnasco Post Number: 168 Registered: 10-2003 |
As JT1 said, the newer Homestead NEZ is going to mean a reduction to about 54 mils. The 26 neighborhoods that were selected are in the process of applying for the NEZ right now, through the 31st, one homeowner at a time. I got mine done last week and an interesting note is that the City is using this opportunity to get an inventory of home condition and improvements. They did a 15 minute question and answer with me asking about everything from heating systems to the condition of porch and garage. This then qualifies the property/house for the lower taxes for the next 15 years. Each property has to go before Council for approval. The reduced mills will be applied to whatever the equalized value is of the home, approximately half of the sales price. So when it sells, if it sells, there will still be a pop up. It will just be less of one because we will now be multiplying that value by 53 or so mils, rather than 63 mils. So for a 200 K house, approximately 100 K sev, the taxes would be around $5300. That's an easy one because the 100 K number is the one right now that gets pretty close to $100 per mil. Hope that helps. | ||
Fortress_warren Member Username: Fortress_warren Post Number: 86 Registered: 10-2006 |
How often does Detroit assess property values and you get new tax bills? Do they do it house by house? Or is it just a general +6% this year kind of thing? | ||
Magnasco Member Username: Magnasco Post Number: 169 Registered: 10-2003 |
It is a general number that is applied, but I think they apply it by neighborhood. Last year there was no increase at all on my EEV House or New Center Condo. | ||
Fortress_warren Member Username: Fortress_warren Post Number: 88 Registered: 10-2006 |
That doesn't sound fair, out here in Cali, we get nicked 2% every year. Everybody. How do they get away with favoring certain area? Seems that would be a perfect 14th Amendment lawsuit. | ||
Swingline Member Username: Swingline Post Number: 613 Registered: 11-2003 |
Billpdx, as a couple of other posters mentioned, it's important to understand the two different kinds of NEZ's. Despite what another poster seemed to imply above, it is not possible to get an NEZ designation for a single fixer-upper anywhere in the city. The law limits the designations to neighborhoods of multiple dwellings or, at a minimum, a single multi-unit building. This version of the NEZ designation is usually obtained by a developer who jumps through a lot of bureaucratic hoops by presenting plans for a major rehabilitation project. Victoria Park was one of the first NEZ projects in the city. Many of the very lucrative 12 year tax abatements given to the newly constructed homes in that neighborhood are now expiring. Over the years, the City Council has granted several dozen designations covering thousands of units. This kind of abatement is not available to individuals like you unless you purchase in a neighborhood or project which already has the designation. Almost all of the new loft projects have an NEZ. Some new single family home projects like Jefferson Village have it as well. It's quite a deal and will reduce taxes by well over 50%. The second type of NEZ designation is the result of a recent amendment of the state law. The amendment is allowing the city to designate NEZs in approximately three dozen stable and relatively expensive neighborhoods throughout the city that will give a tax abatement to homeowners in those neighborhoods who have purchased their homes after 1997. The abatement is smaller, approximately 20% off the citywide millage. Its intent is to make these neighborhoods more affordable for middle and upper middle class households. I don't have the initial list of neighborhoods handy, but I understand that places like Indian Village, Boston Edison and Palmer Woods are on it. If you buy in one of the neighborhooods on the list, you will get the tax break. It's not a huge break but it does get these neighborhoods within shouting distance of some higher tax suburbs like Grosse Pointe and Birmingham. (Message edited by swingline on October 30, 2006) | ||
Jfried Member Username: Jfried Post Number: 913 Registered: 11-2003 |
------------------------------ ------------------it is not possible to get an NEZ designation for a single fixer-upper anywhere in the city. ------------------------------ ------------------ the act states that a nez zone must consist of not less than 10 platted parcels. there are several neighborhoods (north corktown, parts of midtown) where developers have pushed for the entire neighborhood (not just their specific development) to be designated nez. there are a few single family homes that are available for the designation in those areas. | ||
Bvos Member Username: Bvos Post Number: 2054 Registered: 10-2003 |
For an NEZ on new construction the tax rate is determined by the assessed value of the building pre-renovation. The property taxes are then frozen (ie. can't go up greater than 5% or rate of inflation, which ever is less) at the pre-renovation assessment rate for up to 12 years. This explains the wildly varying property tax rates for many of the loft projects being done in older buildings. As far as the NEZ transfering to a new owner: the NEZ it attached to the property, not the owner. So yes, a new owner can get the same tax breaks. A few important things to remember though are that: 1. The NEZ clock starts ticking from the first approval. Subsequent owners only get what's left of the NEZ (ie. someone buying a house in year 6 of a 12 year NEZ only get 6 years of NEZ benefit). 2. The new owner must apply for an NEZ to apply to their ownership of the property. If you are purchasing a home with an NEZ you have to fill out all the paperwork and reapply for the NEZ yourself. It doesn't automatically transfer to you upon signing the warranty deed. Regardless of when you sign the paperwork for the NEZ, item #1 above still applies. As far as an NEZ for an individual project, if you banded together with at least 9 other property/homeowners you could form your own NEZ. The process to create an NEZ is quite extensive and would be very hard to justify for a very small project. | ||
Billpdx Member Username: Billpdx Post Number: 17 Registered: 05-2006 |
Ok. I think I got it. If I buy a home in Indian Village or something, It looks like I'll get about a 20% discount on my taxes, for 12 years. Thanks for the clarification, everyone. | ||
Jt1 Member Username: Jt1 Post Number: 8062 Registered: 10-2003 |
And more importantly you'll get a home that would be million(s) elsewhere for 300-500K I beleive that there are a couple of INdian Village people on this board. You may want to start a thread on the Connections board asking for their input. Seems like a pretty tight knit community but I am certainly not the one to speak on their behalk | ||
Dougw Member Username: Dougw Post Number: 1395 Registered: 11-2003 |
Thanks to Swingline for the clarification on the two different types of NEZs. Billpdx, here's the city's official list of the new stable-neighborhood-type NEZs, with maps: http://www.ci.detroit.mi.us/fi naccessors/nez.htm (Note that for anyone who qualifies for one of these NEZs, you have until the end of tomorrow (Oct 31) to apply for your tax rebate, otherwise you lose your discount for tax year 2007. So, get your ass down to the assessor's office pronto.) | ||
Dougw Member Username: Dougw Post Number: 1396 Registered: 11-2003 |
Yep, and if you're willing to work on a fixer-upper that's still pretty big, there are currently homes in Indian Village available for 200K and even as low as 100K. Taxes on those would not be bad. Email me at dway at mailcan dott com if you're seriously looking and want more details. (I'm just a resident, not a realtor.) Also, with the metro real estate market in the tank, now is the time to buy.  |
