A 1031 exchange in Michigan lets you sell investment real estate and reinvest in like-kind property while deferring the tax on the gain. The federal rules apply the same way everywhere. Michigan has a flat state rate and no nonresident withholding step, and one local feature, how property is reassessed when it changes hands, is worth building into a replacement-property decision. We act as your qualified intermediary, holding the proceeds and handling the documentation so the exchange holds from sale to closing.
Table of contents
- How much is capital gains tax on real estate in Michigan?
- A property-tax point: uncapping on sale
- Michigan 1031 exchange rules and timeline
- 1031 exchanges across Michigan markets
- Common Michigan 1031 exchange mistakes
- Start your Michigan 1031 exchange
- Frequently asked questions
How much is capital gains tax on real estate in Michigan?
Michigan taxes the gain as ordinary income at a flat rate of about 4.25%, with some cities levying their own local income tax. That sits on top of the federal tax an exchange also defers:
- Long-term capital gains at 0%, 15%, or 20%, with the 20% rate applying above $545,500 of taxable income for single filers and $613,700 for married couples filing jointly in 2026.
- The 3.8% Net Investment Income Tax above $200,000 of modified adjusted gross income for single filers, $250,000 for married couples.
- Depreciation recapture, taxed as unrecaptured Section 1250 gain at up to 25%.
- Michigan's flat rate on the gain.
Michigan conforms to Section 1031, so a properly structured exchange defers both the federal and the Michigan tax. The full federal framework is in our main 1031 exchange guide.
A property-tax point: uncapping on sale
Under Michigan's Proposal A, a property's taxable value rises by no more than the lesser of 5% or inflation each year while ownership stays the same, but when the property is sold the taxable value uncaps and resets to the market level. The practical result for a 1031 buyer is that a replacement property's taxable value resets at your purchase, so its tax bill can be meaningfully higher than what the prior owner paid. Underwrite the post-sale taxable value, not the seller's historical figure, when you model a Michigan replacement deal.
Michigan 1031 exchange rules and timeline
The federal deadlines govern, and they are strict:
- 45-day identification. Identify replacement property in writing within 45 days of the sale.
- 180-day closing. Close within 180 days of the sale, or by your return due date including extensions, whichever is earlier.
- No constructive receipt. Proceeds go to your qualified intermediary, never to you.
- Equal or greater value and debt. Reinvest all net proceeds and match or exceed the relinquished value and debt, or the shortfall is taxable boot.
- Same taxpayer. The entity that sold must be the entity that buys.
Michigan does not impose a general nonresident real estate withholding at closing, so closings here are straightforward.
1031 exchanges across Michigan markets
Detroit and its metro carry significant exchange volume, with multifamily and industrial property tied to the automotive sector and ongoing downtown and neighborhood revitalization. Grand Rapids, on the west side, has been one of the strongest and most diversified markets in the Midwest, with manufacturing, medical, and a growing commercial and multifamily base. Ann Arbor, home to the University of Michigan, adds research and technology-driven demand, and Traverse City anchors a northern resort and second-home market. Lansing, the capital, rounds out the picture. Confirm the post-sale taxable value and local rate for any replacement deal.
Common Michigan 1031 exchange mistakes
- Underwriting a replacement property at the seller's old taxable value rather than the uncapped post-sale value.
- Taking receipt of the proceeds, even briefly, which disqualifies the exchange.
- Missing the 45-day identification window.
- Trading down or pulling cash out, which creates taxable boot.
Start your Michigan 1031 exchange
Set up your exchange before your relinquished property closes, so the proceeds never reach your hands and the 45-day and 180-day clocks start clean. Contact our team to begin, or to talk through a specific deal.
Frequently asked questions
How much is capital gains tax on real estate in Michigan?
Michigan taxes the gain as ordinary income at a flat rate of about 4.25%, plus any city income tax, on top of federal capital gains tax.
Is there nonresident withholding when I sell Michigan property?
No. Michigan does not impose a general nonresident real estate withholding at closing.
Why will my replacement property's tax be higher than the seller's?
Under Proposal A, taxable value uncaps and resets to market when a property is sold, so a new owner's bill is based on the purchase rather than the seller's capped historical value.
Do I need a qualified intermediary for a Michigan 1031 exchange?
Yes. The intermediary must hold the proceeds and facilitate the exchange. Engage one before the relinquished property closes.
This page is general information, not tax or legal advice. We act as a qualified intermediary and do not provide tax or legal advice. State and federal rules and thresholds change; confirm current figures with your tax advisor.
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