Taxes on selling a house in Michigan

Selling a house in Michigan costs more at the closing table than selling one in Indiana, and the reason is a single line item: the real estate transfer tax. A seller in St. Joseph or New Buffalo pays it; a seller in Granger, minutes away, does not. There is an exemption that eliminates most of it, but its conditions have quietly stopped matching reality for many sellers, and a great many people who assume they qualify no longer do.

This guide covers the transfer tax, the exemption, and the capital gains question on top. For the Indiana side of the line, see the Indiana guide.

The transfer tax, in numbers

Michigan levies two transfer taxes on the sale of real property, both customarily paid by the seller:

• State transfer tax — $3.75 per $500 of value, which is $7.50 per $1,000.
• County transfer tax — $0.55 per $500, which is $1.10 per $1,000, in every county under 2 million people, including Berrien, Cass and St. Joseph.

Combined: about $8.60 per $1,000 of sale price. Put that against real regional numbers from the market report and it stops being abstract:

These are approximations from typical values, not quotes — the tax is computed on your actual sale price. But the order of magnitude is the point: on the Michigan side this is a four-figure line, and Indiana charges nothing comparable.

The exemption most sellers no longer qualify for

Michigan exempts a seller from the state portion of the transfer tax when the property was the seller's principal residence, a principal residence exemption was claimed on it, and — the condition that does the damage — the property's state equalized value at the time of sale is not greater than its state equalized value at the time of purchase.

Read that last condition again, because it is the whole story. The exemption was written for sellers whose property had not appreciated. After the value growth of recent years — Berrien County up 6.7% year over year, Three Oaks up 13.2% — the great majority of Michiana sellers have a higher SEV than when they bought, and therefore do not qualify. Sellers who bought at the top of the 2006 market and sold in 2011 used this routinely. Sellers in 2026 mostly cannot.

It costs nothing to check. Your SEV at purchase and at sale are on the assessment notices, and the county equalization or assessor's office has both. If the numbers do work, you save $7.50 per $1,000 — on a $300,000 house, $2,250. Ask your closing agent to run it rather than assuming either way.

The capital gain, on top

Transfer tax is owed on the price. Capital gains tax is owed on the gain, and the two are independent — you can owe transfer tax and no income tax at all, which is the common case.

Federal law excludes up to $250,000 of gain on a main home, or $500,000 for a married couple filing jointly, given two of the last five years of ownership and use. Gain is sale price minus selling costs minus adjusted basis, and basis rises with capital improvements — keep the receipts. Whatever survives the exclusion is taxed federally, and Michigan taxes it as ordinary income at the state's flat individual income tax rate, currently 4.25%. Michigan has no separate capital-gains rate.

At Michiana price levels the exclusion covers nearly every owner-occupied sale. The exceptions are the ones to watch: lake and second homes, which do not qualify as principal residences at all (selling a lake house covers that market), rentals carrying depreciation recapture (selling with tenants), and long-held shoreline property where genuine appreciation has outrun the exclusion.

What the buyer inherits: uncapping

Worth understanding even as a seller, because buyers will raise it. Michigan caps annual growth in a property's taxable value while ownership stays put. On transfer, the cap comes off and taxable value resets to the assessed value — "uncapping." A buyer's tax bill after closing can therefore be substantially higher than the bill the seller was paying on the same house, and a buyer who budgets from the seller's current bill will be wrong. Indiana has no equivalent mechanism; its homestead cap works on the bill rather than the value. The two-state property tax guide sets the systems side by side, and it is the single most useful thing to hand a buyer crossing the line in either direction.

Reducing what you actually pay

The transfer tax is statutory — it is not negotiable, though which party pays it is technically a term of the agreement, and seller payment is custom rather than law. The gain is reduced by documented improvements and by selling costs. And the largest controllable number on a Michigan settlement statement is not a tax at all: it is commission, which on a $343,000 St. Joseph sale exceeds the entire transfer tax bill several times over. What it costs to sell lays out the full picture, and selling direct is the lever that moves the biggest number. Before signing, check the arithmetic on the settlement statement — transfer tax is a line that should be easy to verify at $8.60 per $1,000, and it is worth confirming it was computed on the right figure.

Frequently asked questions

How much is the transfer tax when selling a house in Michigan?

Michigan levies a state transfer tax of $3.75 per $500 of value and a county transfer tax of $0.55 per $500 in every county under 2 million people, which includes Berrien, Cass and St. Joseph — about $8.60 per $1,000 of sale price combined. On a $300,000 sale that is roughly $2,580, and on a $681,000 New Buffalo property roughly $5,857. It is customarily paid by the seller.

Who is exempt from Michigan's real estate transfer tax?

The main exemption relieves the seller of the state portion when the property was their principal residence with a principal residence exemption claimed, and its state equalized value at the time of sale is not greater than its state equalized value at the time of purchase. That last condition is strict — after several years of rising values, most Michiana sellers now have a higher SEV than at purchase and do not qualify. It still costs nothing to have your closing agent check.

Do you pay capital gains tax when selling a house in Michigan?

Usually not on an owner-occupied home. Federal law excludes up to $250,000 of gain, or $500,000 for a married couple filing jointly, given two of the last five years of ownership and use, which covers nearly every owner-occupied sale at Michiana price levels. Any gain beyond the exclusion is taxed federally and by Michigan as ordinary income at the state's flat 4.25% rate.

What is uncapping in Michigan and who does it affect?

Michigan limits how fast a property's taxable value can rise while ownership stays unchanged. When the property transfers, that cap is removed and taxable value resets to the assessed value — uncapping. It affects the buyer, not the seller, and it means a buyer's tax bill after closing can be considerably higher than what the seller was paying on the same house. Buyers who budget from the seller's current bill will be wrong.

Is it cheaper to sell a house in Indiana or Michigan?

At the closing table, Indiana — it charges no state or county real estate transfer tax at all, while Michigan's combined transfer tax runs about $8.60 per $1,000 of sale price. On a $300,000 house that is a difference of roughly $2,580. Income tax on any taxable gain also differs: Michigan's flat rate is 4.25%, while Indiana's is a little under 3% plus a county local income tax.