Updated October 7, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. Michigan taxable income starts from “adjusted gross income as defined in the internal revenue code”, and a gain excluded under section 121 is not in it. Gain above the exclusion is taxed at the base rate the statute sets as “on and after October 1, 2012, 4.25%”, which it reduces in some years. The deed carries a state transfer tax.
Michigan tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Starts from adjusted gross income as defined in the Internal Revenue Code; the statute lists no home-sale adjustment |
| Rate on gain above the exclusion | Base rate 4.25% (the statute provides for a reduction in some years) |
| Collected at the sale | State real estate transfer tax of $3.75 for each $500.00 of value, owed by the seller, with an exemption for a principal residence whose state equalized valuation has not risen above its value when acquired; a separate county transfer tax of 55 cents for each $500.00 (not more than 75 cents in a county of 2,000,000 or more); no income tax withholding shown |
| Source | Michigan Legislature |
What the Michigan documents say
MCL 206.30 defines taxable income starting from “adjusted gross income as defined in the internal revenue code”. Under the federal statute, “Gross income shall not include gain from the sale or exchange” of a principal residence that meets the ownership and use tests, so an excluded gain never enters federal adjusted gross income. That is reasoning from two documents. The statute read lists no home-sale adjustment and does not mention section 121.
MCL 206.51 sets the rate: “on and after October 1, 2012, 4.25%”, except as subdivision (c) provides. Subdivision (c) reduces the current rate for tax years beginning on and after January 1, 2023 when general fund revenue growth exceeds inflation under its formula. City income taxes, which some Michigan cities levy, were not read.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple in Michigan sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by Michigan. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000 and, computed as that excess times 4.25%, the tax at the base rate would be $4,250, before any reduction under the statute, city tax or other adjustment.
What is collected at the sale
MCL 207.525, the State Real Estate Transfer Tax Act, levies the tax “the rate of $3.75 for each $500.00 or fraction” of the value of the property being transferred. Section 207.523 of the same Act says “The person who is the seller or grantor of the property is liable for the tax imposed under this act.” Section 207.526(u) exempts the deed for a home with a principal residence exemption under MCL 211.7cc when its state equalized valuation is equal to or lesser than it was when the seller acquired it (or after its certificate of occupancy, if later), in an arms-length sale. The documents read show no income tax withholding on a home sale.
Michigan also has a county real estate transfer tax. MCL 207.504 sets it at “55 cents in a county with a population of less than 2,000,000 and not more than 75 cents as authorized by the county board of commissioners in a county with a population of 2,000,000 or more for each $500.00” of value or fraction.
What changes in 2026
The documents read for Michigan announce no change for 2026 that is specific to the tax on a home sale. The forms and instructions read are for tax year 2025 or the newest page archived; check the state agency for 2026 forms when they are published.
What the documents do not say
- The statutes read do not mention section 121, so conformity is reasoned from the federal definition of adjusted gross income. The Department’s MI-1040 instructions could not be archived, and the rate reduction formula in subdivision (c) was not applied. Who owes the transfer tax and its principal-residence exemption come from sections 207.523 and 207.526 of the same Act. The county real estate transfer tax is read from MCL 207.504 only; its exemptions were not read.
Common mistakes
- Reading the state transfer tax as a tax on your profit; the statute sets it per $500.00 of value.
- Forgetting that some Michigan cities levy their own income tax, which this page does not read.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how Michigan taxes capital gains, Michigan retirement taxes, and home sale exclusion calculator.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare vetted advisors for home sale proceeds
If your portfolio is $250,000 or more, this connects you (free, with no obligation to hire anyone) with 2 to 3 vetted advisors.
Before you start, what actually happens. The matching service is run by WiserAdvisor, an independent advisor-matching company. It opens on their site, asks for your ZIP code and a few questions, and matches you with 2 to 3 vetted advisors. It is free to you.
WiserAdvisor states the service is built for portfolios of $250,000 and above. By submitting, you consent to emails, phone calls and text messages from WiserAdvisor and up to three advisors, so expect to be contacted. Clear Money Guide may earn a referral payment for a qualifying completed form, whether or not you ever hire anyone.
Opens on WiserAdvisor’s site in a new tab.
See how an advisor plans your sale proceeds
Price the destination before you decide. The matching service below introduces you to advisers who pay to meet you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide may earn a referral payment through this service, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- MCL Section 206.30: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-206-30
- MCL Section 206.51: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-206-51
- MCL Section 207.525: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-207-525
- MCL Section 207.523: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-207-523
- MCL Section 207.526: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-207-526
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
- MCL 207.504, Real Estate Transfer Tax Act 134 of 1966 (Michigan Legislature; read October 8, 2026): https://www.legislature.mi.gov/documents/mcl/pdf/mcl-207-504.pdf
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.