How is capped value calculated?

Capped value is a specific calculation used under Michigan's property tax laws to limit the annual increase in a property's taxable value. The correct approach to calculating capped value involves adjusting the prior year's taxable value by a percentage that reflects the inflation rate, ensuring that the property owner is not subjected to drastic increases in taxes due to significant market changes.

Specifically, the capped value calculation uses the lesser of the inflation rate or 5% (provided there is an inflation increase), ensuring that property values do not rise too quickly in response to market fluctuations while still reflecting changes over time. This method provides stability and predictability for property owners in their tax assessments.

The other options present various methods of calculating values, but they do not accurately represent the capped value calculation as defined by Michigan law. Thus, it's clear that adjusting the prior year's taxable value with the inflation rate captures the essence of how capped values are determined.