State Guide 9 min read Updated June 2026

Rental Property Taxes in Michigan (2026 Guide)

Michigan keeps income tax simple — a flat 4.25% — but the property-tax side has two traps landlords miss: a taxable-value "uncapping" that pops your tax bill the year after you buy, and the loss of the Principal Residence Exemption that owner-occupants take for granted. Here is what MI landlords need for 2026.

State Income Tax
Flat 4.25%
Transfer Tax
~0.86%
LLC Annual Fee
$25
Rent Control
Banned

In This Guide

  1. 1. Property Tax in Michigan
  2. 2. Michigan State Income Tax on Rental Income
  3. 3. Bonus Depreciation Decoupling
  4. 4. Transfer Tax (Paid by the Seller)
  5. 5. LLC Fees (No Franchise Tax)
  6. 6. Rent Control
  7. 7. Security Deposit Rules
  8. 8. How SheltrIQ Helps Michigan Landlords

1. Property Tax in Michigan

Michigan assesses property at 50% of true cash value — the State Equalized Value (SEV) (MCL 211.27a). Statewide effective rates run roughly 1.4%–1.6%, varying widely by county and local millage. Proposal A caps how fast your taxable value can grow once you own (the lesser of 5% or inflation), so it drifts below SEV over time.

The "pop-up tax": when you buy a rental, Proposal A's cap resets — the year after a transfer of ownership, taxable value uncaps to that year's SEV (about half of current market value). The seller's years of capped value are lost, so budget for a higher tax bill than the prior owner paid (MCL 211.27a(3)).

  • No Principal Residence Exemption on rentals — the PRE exempts an owner-occupied home from up to 18 mills of local school operating tax. A property you rent out is ineligible, so it pays the full school operating levy (MCL 211.7cc).
  • Partial PRE only if you owner-occupy part — rent out 50% or less of the living space and you can keep a partial exemption.

2. Michigan State Income Tax on Rental Income

Michigan taxes rental income at a flat 4.25% for both 2025 and 2026. The state constitution requires a single non-graduated rate (Mich. Const. Art. IX §7), so there is no graduated schedule and no capital-gains preference — a rental sale gain is taxed at the same 4.25%. Michigan taxable income starts from federal AGI.

  • City income taxes can stack on top. About two dozen Michigan cities levy a local income tax that reaches net rental income from property in the city — Detroit is 2.4% resident / 1.2% nonresident; most others are ~1% resident / 0.5% nonresident (Uniform City Income Tax Act, MCL 141.501).
  • Personal exemption ~$5,900 per person (2026, inflation-indexed).

3. Bonus Depreciation Decoupling

Michigan does not conform to federal bonus depreciation (§168(k)). Individuals add the federal bonus back and depreciate on a regular MACRS basis for Michigan — your federal and Michigan depreciation bases diverge and have to be tracked separately.

A cost-segregation study still pays off on your federal return; just expect Michigan to spread the bonus piece out over the normal recovery period. Keep the two bases reconciled so depreciation lines up year to year.

4. Transfer Tax (Paid by the Seller)

  • State Real Estate Transfer Tax (SRETT) — $3.75 per $500 (0.75%), MCL 207.525.
  • County transfer tax — $0.55 per $500 (0.11%), MCL 207.504.
  • Combined ~0.86% of price, owed by the grantor (seller); the register of deeds will not record until it is paid.

5. LLC Fees (No Franchise Tax)

A Michigan LLC files a $25 annual statement with LARA, due February 15 each year (MCL 450.4909). There is no LLC franchise or privilege tax — the $25 statement is the only recurring state cost.

6. Rent Control

Michigan prohibits local rent control statewide. MCL 123.411 bars any local government from enacting or enforcing an ordinance that controls the rent charged for private residential property, so no city or county may impose rent control or rent stabilization. You set rents at market.

7. Security Deposit Rules

Michigan's Security Deposit Act (MCL 554.602–.613) sets the rules:

  • Cap of 1.5 months' rent.
  • Held at a regulated financial institution — or you may use the funds if you post a cash or surety bond with the state.
  • Itemize and return within 30 days of the tenant moving out; if you withhold for damages and the tenant disputes, you must file suit within 45 days or return the deposit.

8. How SheltrIQ Helps Michigan Landlords

SheltrIQ keeps your federal and Michigan returns aligned and surfaces the easy-to-miss items:

  • Bonus-depreciation tracking — flags the Michigan add-back and keeps a separate MI depreciation basis.
  • Depreciation schedules — builds 27.5-year MACRS and tracks improvements and personal property.
  • AI Schedule E classification — sorts each expense to the right line so your MI income starts from an accurate federal return.
  • Deadline reminders — keeps the $25 February 15 annual statement and estimated-payment dates on your radar.

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