How Michigan Taxes Capital Gains
Michigan taxes all capital gains — short-term and long-term — at a flat 4.25%. There’s no preferential rate for long-term holdings, no distinction by asset type. Stocks, real estate, crypto, and collectibles all get the same treatment. (One exception: the rate was 4.05% for 2023 only, triggered by a one-time revenue surplus under MCL 206.51. It reverted to 4.25% for 2024+.)
Unlike Pennsylvania (3.07%, no deductions), Michigan provides personal exemptions that reduce your total taxable income including capital gains. For 2025, that’s $5,800 per person ($5,900 in 2026) — $11,600 for a married couple filing jointly ($11,800 in 2026), plus the same per dependent. These exemptions are indexed annually for inflation. There’s no standard deduction, though, so the exemption is your only state-level offset.
Michigan follows federal rules on capital losses: losses offset gains dollar-for-dollar, up to $3,000 in net losses can reduce other income, and unused losses carry forward to future years. This is notably more generous than Pennsylvania, which allows no carryforward and no offset against other income.
Federal + MI Combined Example
Single filer, $80,000 salary, sells stock held over one year for a $50,000 long-term capital gain. Using the federal standard deduction ($16,100 for 2026):
Federal taxes on the gain:
- Taxable ordinary income after deduction: $80,000 − $16,100 = $63,900
- LTCG stacks on top: $63,900 to $113,900
- The 0% LTCG bracket ends at $49,450 (2026 single) — already exceeded by ordinary income
- The 15% bracket runs from $49,450 to $545,500 — all $50,000 fits here
- Federal LTCG tax: $50,000 × 15% = $7,500
Michigan tax on the gain:
- Michigan AGI: $80,000 + $50,000 = $130,000
- Personal exemption: $5,900 (single, 2026)
- The exemption reduces total taxable income, but at this income level the marginal rate on the gain is the full 4.25%
- MI tax on the gain: $50,000 × 4.25% = $2,125
Combined capital gains tax: $9,625 — an effective rate of 19.3% on the gain. No NIIT applies because MAGI ($130,000) is below the $200,000 single threshold.
How MI Compares to Neighboring States
Michigan’s 4.25% sits in the middle of its neighbors. Here’s the marginal state tax on $50,000 in long-term capital gains for a single filer with $80,000 ordinary income:
- Indiana — ~$1,500 (flat 3.0% in 2025)
- Ohio — ~$1,525 (3.5% bracket after exempt threshold)
- Michigan — $2,125 (flat 4.25%)
- Wisconsin — ~$3,050 (5.3%–6.27% brackets)
- Minnesota — ~$3,500 (6.8%–7.85% brackets)
- Illinois — ~$2,475 (flat 4.95%)
Indiana and Ohio are cheaper; Wisconsin and Minnesota cost significantly more. On a $200,000 gain, Michigan’s $8,500 state tax looks modest compared to Minnesota’s ~$14,000 or Wisconsin’s ~$12,000, but Indiana would charge only ~$6,000.
When the NIIT Hits
The 3.8% Net Investment Income Tax adds to both federal and state capital gains taxes. It applies on the lesser of your net investment income or the amount your MAGI exceeds the threshold:
- Single / Head of Household: $200,000
- Married Filing Jointly: $250,000
- Married Filing Separately: $125,000
These thresholds haven’t changed since 2013 — they’re not indexed for inflation. A couple with $200,000 in wages and a $100,000 gain has MAGI of $300,000, putting $50,000 subject to NIIT — $1,900 in additional federal tax on top of the 15% LTCG rate and MI’s 4.25%.
Use the NIIT Calculator to model the exact impact at your income level.
City Income Taxes and Capital Gains
Michigan has 24 cities that levy their own income taxes, and residents of those cities owe city tax on capital gains. Under Michigan’s Uniform City Income Tax Ordinance, residents are taxed on all taxable income — wages, business income, dividends, interest, and capital gains alike. This is a third layer of tax on top of federal and state.
The largest city tax rates for residents:
- Detroit — 2.4% (1.2% for non-residents)
- Highland Park — 2.0% (1.0% for non-residents)
- Grand Rapids, Saginaw — 1.5% (0.75% for non-residents)
- Most other cities — 1.0% (0.5% for non-residents)
A Detroit resident with a $50,000 capital gain owes $1,200 in city tax on top of $2,125 in state tax and federal tax — pushing the combined effective rate from 19.3% to 21.7%. Enter your city’s resident rate in the calculator above to see the full three-layer total.
Non-residents are generally taxed only on compensation earned within the city and business income sourced there. Investment gains from stocks and other assets not connected to city-based business activity are typically not subject to the non-resident city rate.
Tax-Loss Harvesting in Michigan
Tax-loss harvesting works fully in Michigan because the state follows federal capital loss rules:
- Losses offset gains dollar-for-dollar within the same year
- Up to $3,000 in net capital losses ($1,500 MFS) can offset ordinary income
- Unused losses carry forward indefinitely
The federal wash sale rule — no repurchase of substantially identical securities within 30 days — applies for both federal and Michigan purposes. Michigan conforms to the federal treatment, so there’s no basis divergence to track (unlike Pennsylvania, where wash sales are treated differently).
At a combined federal + MI rate of 19.25% on LTCG, harvesting a $10,000 loss saves about $1,925 in taxes. Use the Tax-Loss Harvesting Calculator to model larger scenarios.
Real Estate Capital Gains
Michigan follows the federal IRC §121 exclusion for principal residence sales: up to $250,000 ($500,000 MFJ) excluded if you owned and lived in the home for 2 of the last 5 years. The exclusion applies to both federal and Michigan tax.
For investment properties, the gain is fully taxable. Depreciation recapture (Section 1250) is taxed at 25% federally and at the flat 4.25% for Michigan. The Home Sale Exclusion Calculator handles the federal side; add 4.25% on whatever gain exceeds the exclusion for Michigan.
One Michigan-specific consideration: the state transfer tax is $7.50 per $1,000 of value ($3.75 per $500), plus a county transfer tax of $1.10 per $1,000 ($0.55 per $500). On a $400,000 sale, that’s $3,000 in state transfer tax plus $440 in county tax — a transaction cost, not a capital gains tax, but it affects your net proceeds.
Short-Term vs. Long-Term: MI Doesn’t Care, but the Feds Do
Michigan taxes all gains at 4.25% regardless of holding period. The entire incentive to hold long-term comes from the federal side:
| Short-Term (<1 year) | Long-Term (1+ year) | |
|---|---|---|
| Federal rate | 10%–37% (ordinary brackets) | 0%/15%/20% + possible 3.8% NIIT |
| MI rate | 4.25% | 4.25% |
| Combined max | 41.25% | 28.05% |
At $80,000 salary (2026, single), a $50,000 short-term gain crosses from the 22% into the 24% bracket at $105,700. The federal tax on the gain is $11,164, plus $2,125 in MI tax — $13,289 total (26.6% effective). The same gain held long-term: $7,500 + $2,125 = $9,625 (19.3% effective). Holding past the one-year mark saves $3,664.
Senior Capital Gains Subtraction (Born Before 1946)
Michigan allows seniors born before January 1, 1946 — or the unremarried surviving spouse of someone born before 1946 who died after age 65 — to subtract dividends, interest, and capital gains from Michigan taxable income. The limits are indexed annually:
- 2025: up to $14,688 single / $29,376 MFJ
- 2024: up to $14,274 / $28,548
- 2023: up to $13,712 / $27,424
These limits are reduced dollar-for-dollar by any retirement or pension subtraction claimed. If a single filer claims a $10,000 pension subtraction in 2025, only $4,688 remains for the capital gains subtraction ($14,688 − $10,000). For retirees receiving both pension income and investment income, the pension subtraction usually takes priority — but if your pension income is modest, the capital gains subtraction can eliminate Michigan tax on a meaningful portion of investment gains.
At $14,688 (single), the subtraction saves up to $624 in Michigan tax (4.25% × $14,688). Not life-changing, but worth claiming if you qualify. Enter the portion you’re applying to capital gains in the “Senior CG subtraction” field above — the calculator will reduce your state and city tax accordingly without affecting your federal estimate.
Michigan’s Flat Rate Advantage for High Earners
Because Michigan’s rate is flat, high-income investors pay the same 4.25% as everyone else. In progressive-rate states like Minnesota (9.85% top rate) or Wisconsin (7.65%), a large capital gain pushes you into higher brackets. In Michigan, a $1 million gain costs exactly $42,500 in state tax. In Minnesota, the same gain could cost over $90,000.
This makes Michigan particularly attractive for large one-time events — selling a business, exercising stock options, or liquidating a concentrated position. The Capital Gains by State ranking shows where Michigan falls across all 50 states for different gain amounts.