Most states tax property on its current market value, reassessed periodically. California and Michigan both do something different: they reset the tax basis specifically when a property changes hands, then cap how fast it can grow until the next sale. The underlying idea is similar. The mechanics are not, and mixing them up will get your holding-cost math wrong.
California: Proposition 13
Under Prop 13, the assessed value resets to your purchase price at closing. From there it can rise at most 2% per year, plus voter-approved local bonds, until the property sells again. The base rate is 1% of assessed value; with local additions, the effective rate typically lands just over 1%. The key underwriting mistake is looking at the seller’s current tax bill — if they’ve held the property since the 1990s, their bill reflects a decades-old basis that resets the moment you buy.
Michigan: Proposal A
Proposal A works in the opposite direction on the way in: an existing owner’s taxable value is capped at the lesser of inflation or 5% per year — but on any transfer of ownership, that taxable value uncaps and resets to the State Equalized Value, which is about 50% of market value. So where California resets your basis to what you paid, Michigan resets it to half of what the property is worth on the county’s books — a related but distinct calculation. A Principal Residence Exemption can remove up to 18 school operating mills afterward if you occupy it, but only once filed.
| California (Prop 13) | Michigan (Proposal A) | |
|---|---|---|
| Basis resets to | Purchase price | State Equalized Value (~50% of market value) |
| Annual growth cap | 2% | Lesser of inflation or 5% |
| Effective rate | ~1.16% | ~1.38% of the reset SEV basis |
| Owner-occupant relief | Homeowners’ exemption (modest) | Principal Residence Exemption (~18 mills) |
The underwriting rule that applies to both
Never use the seller’s current property tax bill as your holding-cost estimate in either state. Calculate the post-sale basis from the mechanism above, then apply the rate — the gap between the old and new bill is often the single biggest holding-cost surprise investors hit in reassessment states.