Michigan taxes capital gains as ordinary income — up to 4.25% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~28.1% of the gain. A 1031 exchange into a Delaware Statutory Trust lets Michigan investors defer that combined bill and trade active landlording for passive institutional real estate.
The Michigan tax math
Here's the tax stack on a long-held rental sold for a $1.5M gain (excludes depreciation recapture, taxed separately at up to 25%):
| On a $1.5M gain | Tax |
|---|---|
| Federal long-term capital gains (20%) | $300,000 |
| Net investment income tax (3.8%) | $57,000 |
| Michigan income tax (4.25%) | $63,750 |
| Total if you simply sell | $420,750 |
| Tax if you 1031 into a DST | $0 deferred |
In Michigan's top bracket, roughly the combined rate above goes to tax if you sell outright — versus $0 now with a qualifying 1031 exchange. Run your Michigan numbers →
Michigan 1031 rules
Rules summarized as of 2026 — verify with your tax advisor.
Conforms to federal §1031
Michigan conforms to IRC §1031, so a qualifying exchange defers Michigan tax as well as federal tax.
Withholding at sale
Michigan may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
How gains are taxed
Taxed as ordinary income — up to 4.25%.
Michigan market snapshot
Illustrative — wire to a market-data feed; refreshed quarterly.
Baker 1031 in Michigan
Realized (acquired, held, sold) programs on Michigan assets. Joined from full-cycle-deals.csv; sponsor-reported, net-to-investor, not independently verified; past performance ≠ future results.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Walgreens — Clarkston | Syndicated Equities | 7.22% | 1.99x | 9.87 yr |
| Courtland Center — Burton | Syndicated Equities | -8.79% | 0.39x | 10.23 yr |
| Champps — Utica | AEI | 4.21% | 0.64x | 9.65 yr |
| Kingsbury Apartments — St. Louis | Time Equities | 13.89% | 1.68x | 3.09 yr |
| North Park Towers — Southfield | Bluerock | -11.60% | 0.25x | 9.83 yr |
| Village Green — Ann Arbor | Bluerock | 8.00% | 2.25x | 4.42 yr |
| The Vista & Willow Creek — Portage and Battle Creek | Syndicated Equities | 8.20% | 1.19x | 2.21 yr |
| BJ's Restaurant & Brewhouse / Champps — Livonia | AEI | 6.57% | 1.73x | 17.28 yr |
See every Michigan deal in the Data Center →
Current offerings for Michigan investors
| Offering | Sponsor | Type | Status |
|---|---|---|---|
| Blue Owl Real Estate Exchange V DST | Blue Owl | Industrial | Coming Soon / Under Review |
| ExchangeRight Net-Leased Portfolio 75 DST | ExchangeRight | Net Lease | Limited Availability |
| NLC Financial Service HQ DST | Net Lease Capital Advisors | Office | Available |
Learn more
Michigan FAQ
What is the capital gains tax rate in Michigan?
Michigan taxes capital gains as ordinary income, up to 4.25%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket Michigan seller can face roughly ~28.1% on a real estate gain.
Does Michigan recognize 1031 exchanges?
Yes. Michigan conforms to IRC §1031, so a properly structured exchange defers Michigan tax as well as federal tax.
Why use a 1031 exchange in Michigan?
To defer the tax on a large gain (up to about ~28.1% combined) and move from active landlording into passive, professionally managed real estate while keeping your full equity invested. These are Regulation D offerings for accredited investors.
Disclosures
This page is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. State tax and 1031 rules summarized here are general, current as of 2026, and not tax advice — verify with your CPA and attorney. For accredited investors only. Representatives may transact business only in states where registered or exempt. Securities offered through Aurora Securities, Inc., member FINRA/SIPC; Baker 1031 Investments, LLC is independent of Aurora. Performance shown is sponsor-reported, realized programs only, net of fees, not independently verified, and not indicative of future results.