Expert answers from Michigan's trusted cash home buyers. Questions? Call (269) 389-9961 anytime.
A 1031 exchange (named for IRS Section 1031) lets you defer capital gains tax by reinvesting sale proceeds into a 'like-kind' property. Michigan has no state-level equivalent — Michigan capital gains tax deferred at state level follows federal rules. You can do a 1031 exchange selling a Michigan investment property and reinvesting anywhere in the US.
Federal rules: 45 days to identify replacement property after closing, 180 days to close on the replacement. These are hard deadlines — missing either disqualifies the exchange and you owe all deferred taxes immediately. A qualified intermediary must hold the funds between transactions.
No — 1031 exchanges are for investment or business properties only. Your primary residence is not eligible. You'd use the Section 121 exclusion ($250K/$500K) for your primary residence instead. If you converted your home to a rental before selling, partial exchange treatment may be possible — consult a CPA.
For real estate, almost any US real estate qualifies as like-kind to any other US real estate. Selling a Michigan rental house? You can exchange into a Michigan apartment building, an Arizona commercial property, a Florida vacation rental — real estate to real estate is like-kind. You cannot exchange into foreign property, stocks, or personal property.
Do the math. On a $200,000 gain with 20% federal + 3.8% NIIT + 4.25% Michigan = ~28% effective rate = $56,000 in taxes. A 1031 keeps all $200,000 working. But if you want out of real estate permanently, or the replacement market doesn't have attractive options, paying taxes and simplifying may be better. Consult a CPA.
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