1031 Exchanges in Michigan: Rules, Taxes, Insurance, and the Long Arc

A Shop 1031 research page. Reviewed 2026-06-03. Every claim sourced; sources collected at the foot of the page.

Michigan is a flat-tax conforming state with a Proposal A assessment cap that uncaps on transfer, not a standard reassessment state. The distinction matters because Proposal A (Michigan Constitution Article IX §3) caps annual increases in the taxable value of all real property at 5 percent or the rate of inflation, whichever is less, but the cap resets to fair market value on any transfer of ownership. An exchanger acquiring previously underassessed Michigan property faces a meaningful step-up at acquisition. Michigan conforms to federal §1031 through MCL Chapter 206 and taxes recognized boot at the flat 4.25 percent rate.

§1. 1031 mechanics in Michigan

The federal floor applies under 26 U.S.C. §1031 and 26 C.F.R. §1.1031(k)-1. ^{1 2}

Michigan conforms to federal §1031 under MCL Chapter 206 (Income Tax Act). Recognized boot is taxed at the Michigan flat individual income tax rate, currently 4.25 percent. ³

Michigan imposes two real estate transfer taxes at recording. The state transfer tax under MCL §207.523 runs at $3.75 per $500 of consideration ($7.50 per $1,000). The county transfer tax under MCL §207.503 runs at an additional $0.55 per $500 ($1.10 per $1,000). The combined rate is $8.60 per $1,000, or 0.86 percent. On a $5,000,000 acquisition, the combined state-plus-county transfer tax runs $43,000. ^{4 5}

Michigan imposes no state-level QI registration regime.

Michigan is functionally a title-and-escrow state with attorney involvement common in larger commercial transactions.

§2. Property tax in Michigan

Michigan has an effective property tax rate of approximately 1.38 percent of owner-occupied housing value, above the 1.02 percent national median. The structural mechanics are governed by Michigan Constitution Article IX §3 (Proposal A) and the General Property Tax Act (MCL Chapter 211). Property is assessed at 50 percent of fair market value (called “State Equalized Value” or SEV). The taxable value is capped under Proposal A at the lesser of 5 percent annual increase or the rate of inflation. The cap resets (“uncaps”) to current SEV on any transfer of ownership. ⁶

For an exchanger acquiring Michigan investment property, the uncap on transfer is the operative diligence variable. A property whose prior owner held it for many years can have a taxable value materially below the SEV, with the uncap producing a sharp year-one tax increase for the exchanger.

Harlow’s note on unit economics. On a $5,000,000 Michigan commercial acquisition, year-one property tax runs roughly $50,000 to $90,000 depending on the specific municipality and the uncap effect. Build the hold-period line from the post-uncap taxable value (equivalent to the SEV at acquisition), with the 5 percent / inflation cap applying prospectively only.

§3. Property insurance in Michigan

Michigan property insurance is dominated by severe-thunderstorm, tornado, hail, ice-storm, and snow-load exposure. The Michigan Department of Insurance and Financial Services regulates carrier conduct. ⁷

Harlow’s note on unit economics. For a $5,000,000 Michigan commercial property, expect property-insurance expense in the range of 0.4 to 0.8 percent of insured value.

§4. Demographic trends

Michigan’s population stood at approximately 10.1 million as of 2025 Census estimates, with roughly flat growth. Net domestic migration has been negative for most of the past decade. ^{8 9}

Median household income in Michigan was approximately $72,000 in 2024, near the national median. ^{10 11}

The major Michigan markets are Detroit-Warren-Dearborn (approximately 4.3 million population), Grand Rapids-Kentwood (approximately 1.1 million), Lansing-East Lansing (approximately 540,000), Ann Arbor (approximately 375,000), and the Flint and Saginaw corridors. Detroit concentrates the deepest commercial market with the broadest cap-rate range and significant adaptive-reuse activity; Grand Rapids carries the strongest secondary growth signal; Ann Arbor concentrates the University of Michigan and life-sciences corridor.

§5. Unique legal and financial considerations

The first is the Proposal A uncap on transfer, addressed in §2.

The second is the Michigan Property Transfer Affidavit (Form L-4260), required to be filed with the local assessor within forty-five days of any transfer, which triggers the uncap calculation.

The third is the Detroit Land Bank and the various adaptive-reuse and tax-abatement programs available in Detroit, including NEZ (Neighborhood Enterprise Zone) and OPRA (Obsolete Property Rehabilitation Act) abatements that can materially affect property-tax economics on qualifying acquisitions.

§6. Closing summary and the work ahead

The Michigan 1031 exchanger is operating in a market with a clear set of distinguishing features. The federal floor applies; Michigan fully conforms at the flat 4.25 percent rate; the state-and-county transfer tax stack runs 0.86 percent at recording; Proposal A caps annual taxable value increases but uncaps on transfer producing year-one step-up exposure; insurance exposure is dominated by severe weather; demographic growth is roughly flat; Detroit-area tax-abatement programs can be material on adaptive-reuse acquisitions. None of these is a reason to avoid a Michigan exchange. Each is a reason to underwrite one carefully. The jurisdiction-specific factors above are starting-point context. A state-experienced CRE professional will translate them into deal-specific judgment.

This page is the working map. The actual exchange is run by people. A Michigan-licensed real estate attorney, a Michigan-licensed CPA familiar with §1031 and Proposal A uncap mechanics, a Qualified Intermediary, and a CRE professional who knows this market and these properties. Shop 1031 is the analytics layer that triages which deals deserve your time. The professionals do the work.

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Shop 1031 is an independent analytics platform. We are not a brokerage, a law firm, a tax advisor, a lender, or a Qualified Intermediary. Every 1031 exchange should be reviewed by a state-licensed real estate attorney, a CPA familiar with IRC §1031, and a QI. Brokerage and advisory services, when used, are provided by independently licensed third parties under separate engagement. This page is research, not advice. The Michigan-specific surfaces discussed (Proposal A uncap on transfer and year-one taxable-value step-up, Property Transfer Affidavit filing requirements within forty-five days, Detroit-area abatement program eligibility on qualifying adaptive-reuse acquisitions, state-and-county transfer tax stack) each carry material risk if mishandled and should be addressed with a Michigan-licensed attorney, a Michigan-licensed CPA, and a Qualified Intermediary before identification, not after.

Federal authority: 26 U.S.C. §1031; 26 C.F.R. §1.1031(k)-1.

Michigan authority: Mich. Const. Art. IX §3 (Proposal A); MCL Ch. 206 (income tax), Ch. 211 (property tax), §§207.503, 207.523 (transfer taxes).

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