Michigan
Reviewed July 2026Federal §453 conformity
Yes — Michigan starts from the federal return and taxes installment gain as payments arrive at a flat 4.25%, with no capital gains preference. Twenty-some cities — Detroit most prominently — levy their own income taxes on top, so a city-resident seller adds the local rate to every payment year.
Nonresident sourcing
Gain from Michigan real estate or a business operating in Michigan is Michigan income for sellers anywhere, and the payments keep that character; intangible gain generally follows the seller home. City taxes reach nonresidents only on city-earned income, at half rates.
Withholding
Michigan imposes no closing-table withholding on nonresident real estate sellers. Pass-throughs handle nonresident owners through withholding or composite filings each recognition year unless the flow-through entity tax covers it.
Selling, then moving (residency change)
Michigan-source gain stays taxable here after a move; other gain travels with the seller, and no rule accelerates deferred gain at the border.
Pass-through entity (PTE) tax election
Michigan's flow-through entity tax carries a feature no other state's election shares so starkly: once made, it binds the entity for that year and the next two. A sale-year election is a three-year commitment — if the entity will have owners, income, or states in different configurations across the payment stream, model all three years before signing up, not just the big one.
Estate and IRD
Michigan has no estate or inheritance tax. At death the federal rules apply — heirs pay income tax as payments arrive — with no state layer beyond any applicable city tax.
Planning notes
Michigan's list: check the seller's city before quoting a rate; treat the FTE election as the three-year commitment it is, modeled across the whole window; and coordinate the entity's nonresident filings each payment year.
Michigan's flow-through entity election binds the entity for the year made and the following two. A sale-year election that pencils beautifully in year one can trail obligations into years whose ownership and income look nothing like the closing — model the whole window first.
Educational information, current as of the July 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
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