How is Capped Value determined in Michigan?

In Michigan, Capped Value plays a crucial role in determining the taxable value of property for property tax purposes. It is calculated as the lesser of the previous year's taxable value or the current year's assessed value, with adjustments made for inflation based on the Consumer Price Index (CPI). This means that while the assessed value reflects the market conditions and property valuation for the current tax year, the Capped Value serves as a limit to how much the taxable value can increase from one year to the next.

This method is designed to protect property owners from drastic increases in property taxes that could occur due to rapid changes in market values. By capping the increase to the rate of inflation or the previous year’s taxable value, the system aims to provide stability and predictability in property taxation.

The other options do not reflect the actual mechanism of determining Capped Value. For instance, using only the current year’s assessed value ignores the critical adjustment for the previous year and inflation. Taking the average of the last five assessments does not apply to the Capped Value calculation and would not account for inflation constraints. Focusing solely on current market trends disregards the protective measures that Capped Value offers property owners against sudden increases in property taxes.