Selling a rental property isn’t just about finding a buyer—it’s also about understanding the tax consequences. If you’re planning to sell your rental property in Michigan, here’s what you need to know about capital gains, depreciation recapture, and strategies to reduce your tax burden.

Capital Gains Tax

When you sell a rental property for more than you paid, the profit is considered a capital gain. Michigan property owners may face both:

Federal capital gains tax
Michigan state income tax

Depreciation Recapture

Over the years, you may have claimed depreciation deductions on your rental. When selling, the IRS requires you to “recapture” that depreciation, which is taxed separately.

Strategies to Reduce Taxes

1031 Exchange – Reinvest profits into another property to defer taxes.
Offset with capital losses – If you’ve sold other assets at a loss, you can offset your gain.
Installment sale – Spread out income over multiple years to reduce your tax bracket impact.

Selling to a Cash Buyer and Taxes

If you sell quickly to a cash buyer like I Buy Michigan, the tax obligations remain the same. However, cash buyers can help you close before tax deadlines, giving you flexibility in planning.

Conclusion

Before selling your Michigan rental property, always consult with a tax professional. By planning ahead, you can minimize tax burdens and keep more of your profit. Contact us to learn more!