Most Michigan homeowners owe no income tax when they sell their home: federal law excludes up to $250,000 of gain, or $500,000 for a married couple filing jointly, if you owned and lived in it for at least two of the last five years, and Michigan's income tax starts from that federal figure. What sellers do pay is Michigan's transfer tax, $4.30 for every $500 of the price in state and county tax combined, at closing.
Three taxes can touch a home sale in Michigan: federal income tax on the gain, Michigan income tax on the same gain, and the transfer tax on the deed. Here is how each works, with an example.
Do you pay capital gains tax when you sell your home in Michigan?
Only on the part of the gain the federal exclusion doesn't cover. The IRS lets you exclude up to $250,000 of gain from the sale of your main home, or $500,000 on a joint return, when:
- Ownership: you (or your spouse) owned the home for at least 24 months of the five years before the sale, and
- Use: you lived in it as your main home for at least 24 months of those five years. For the $500,000 exclusion, both spouses must meet the use test.
The two years don't have to be in a row, and you generally can't use the exclusion if you used it on another home in the two years before this sale.
Selling sooner? If the main reason for the sale is a change in where you work, a health issue or an unforeseeable event, you may get a partial exclusion, prorated by the time you lived there. IRS Publication 523 has the worksheet.
How Michigan taxes the gain
Michigan has no separate capital gains tax. Michigan taxable income begins with your federal adjusted gross income (MCL 206.30), so a gain you exclude on your federal return is not in your Michigan income either. A gain you can't exclude is taxed with the rest of your income at Michigan's flat rate, which Treasury confirmed is 4.25 percent for the 2026 tax year.
Some Michigan cities, Detroit and Flint among them, levy their own income tax. If you live in one, ask your tax preparer how it treats the gain.
How to figure your gain
Your gain is not the price minus what you paid. It is:
- The amount realized: the sale price minus your selling costs, such as the brokerage commission, the transfer tax and legal and title fees you pay as seller.
- Minus your adjusted basis: what you paid for the home, plus certain purchase costs, plus the cost of additions and improvements (a new roof, a remodeled kitchen, a finished basement). Ordinary repairs don't count.
Keep closing statements and receipts for improvements for as long as you own the home; they lower the gain.
A worked example (illustrative). A married couple bought their home in 2012 for $150,000 and spent $30,000 on a new roof and a kitchen remodel. They sell in 2026 for $420,000 and pay $30,000 in selling costs.
| Line | Amount |
|---|---|
| Sale price | $420,000 |
| Selling costs | minus $30,000 |
| Amount realized | $390,000 |
| Purchase price plus improvements | minus $180,000 |
| Gain | $210,000 |
| Excluded (joint return, both lived there two of the last five years) | $210,000 |
| Taxable gain, federal and Michigan | $0 |
Change one fact: the same sale by a single owner with a $310,000 gain. The first $250,000 is excluded and $60,000 is taxable. Michigan's tax on it is $2,550 (4.25 percent). If that $60,000 falls in the 15 percent federal bracket, federal tax is $9,000. Figures are illustrative; your own return decides the result.
Federal rates on a taxable gain
- Owned more than one year: a long-term gain, taxed at 0, 15 or 20 percent depending on your taxable income. The IRS adjusts the income brackets each year.
- Owned one year or less: a short-term gain, taxed at your ordinary income tax rates.
- Net investment income tax: 3.8 percent may apply to the taxable part of the gain if your modified adjusted gross income is over $200,000 (single) or $250,000 (married filing jointly). The excluded part is not counted.
- A loss on the sale of your home is not deductible.
When the exclusion doesn't cover everything
- Rental or home office depreciation. Any depreciation you claimed (or could have claimed) after May 6, 1997 is taxable when you sell, even if the rest of the gain is excluded.
- Years it wasn't your main home. Gain tied to periods after 2008 when the home was not your principal residence, such as years it was rented before you moved in, generally can't be excluded.
- An inherited home. Your basis is generally the home's fair market value on the date the owner died, so the gain is usually measured from that value, not the original purchase price.
- A second home or rental. The exclusion is for your main home only.
Michigan's transfer tax: what sellers pay at closing
Michigan law makes the seller liable for the transfer tax, which is collected when the deed is recorded:
- State: $3.75 for each $500 of the price (MCL 207.523).
- County: $0.55 for each $500 (MCL 207.505).
On a $420,000 sale that is $3,150 state plus $462 county, $3,612 in all. It counts as a selling cost when you figure your gain. Run your own price in our transfer tax calculator, and read about the exemption for selling a principal residence whose state equalized value has not risen since you bought it in our transfer tax guide.
Property taxes and the Principal Residence Exemption
- Property taxes are split between you and the buyer at closing, as the purchase agreement says. The split shows as a credit or charge on both closing statements.
- The Principal Residence Exemption must be rescinded within 90 days after the home stops being your principal residence, with Treasury Form 2602 (MCL 211.7cc). If you move to another Michigan home before this one sells, ask your assessor about a conditional rescission, which can keep the exemption while the home is for sale, empty and not rented.
Reporting the sale
The closing agent, usually the title company, may file a Form 1099-S reporting the sale. Report the sale on your return (Form 8949 and Schedule D) if you receive a 1099-S, even when all of the gain is excluded, or if you can't exclude all of it. This guide explains the rules; it isn't tax advice. A tax preparer can apply them to your return.
Start with the price
Every number above starts with what your home sells for. Ask for a home value estimate and your Raven agent will prepare a net sheet with the commission, the transfer tax and the other closing lines for your price.
