Selling a home in Detroit is not challenging until you have to deal with home sale taxes, fees, and paperwork. Some are avoidable, but others depend on how long you have owned the home, how much you have gained, and whether it’s your primary residence or an investment. It’s time to learn more if you have made up your mind to sell your home.
Detroit Home Sale Taxes
Let’s go into detail to make the process easy:
Transfer Taxes
When you sell real estate in Detroit, you’ll usually pay transfer tax. It’s a state and county fee charged when ownership changes hands.
- State tax: $3.75 per $500 of the sale price
- County tax (Wayne County): $0.55 per $500
- Total: $4.30 per $500 or about $8.60 per $1,000 of your home’s sale price
So if your house sells for $150,000, you’ll owe about $1,290 in transfer taxes. Usually, the seller pays this tax, but not always. You can negotiate it in your purchase agreement whether you go for a traditional sale or selling house fast for cash. It’s collected at closing when the deed is recorded.
Other Small Closing Fees
On top of the transfer tax, you’ll see small fees for recording your deed and other documents. These come from Wayne County’s recording office. They’re not technically taxes, just administrative fees around a few hundred dollars, depending on the number of pages filed.
Capital Gains Tax
The bigger question most sellers have is: Will I owe tax on my profit? If you are selling your primary home, you may not owe anything at all. The IRS gives homeowners a generous tax break called the Home Sale Exclusion (Section 121):
- You can exclude up to $250,000 of profit if you are single
- Or up to $500,000 if you are married and file jointly
You qualify if:
- You owned and lived in the home as your main residence for at least 2 of the last 5 years, and
- You haven’t claimed this exclusion in the previous 2 years.
Selling a Rental or Investment Property
If you rented the home out or used it as an investment, the rules change. You’ll pay capital gains tax on your profit, and you’ll also owe depreciation recapture tax on any deductions you claimed for wear and tear while renting it.
Those gains are usually taxed at 15% or 20%, depending on your income, and depreciation is taxed at up to 25%.
If you plan to sell one rental and buy another, you may be able to delay the taxes through a 1031 exchange, but the timing rules are strict, so talk to a tax professional before closing.
Property Tax Adjustments and Uncapping
At closing, you will only pay property taxes for the portion of the year you owned the home. The buyer covers the rest. That’s called a proration. However, if you have backed taxes, the seller is typically responsible for this and it’ll come out of the sale/purchase price at closing.
There’s another Michigan-specific thing to know: when a home changes owners, the taxable value resets, and this is called uncapping. It means the buyer’s future property tax bill could go up, but it doesn’t affect your side of the sale. It is something to be aware of if buyers ask about it.
Paperwork You’ll See at Closing
A few tax forms come with the sale:
- Form 1099-S, the closing agent may file this with the IRS to report the sale. Even if you qualify for the exclusion, you still need to report it correctly on your tax return.
- Transfer affidavits and property certifications required by Wayne County and the City of Detroit for every real estate transaction. Your title company handles these, but double-check that all forms are filed because missing paperwork can delay recording.
Common Mistakes Sellers Make
The most common mistakes that sellers usually make are:
- Ignoring the transfer tax, although it’s small, you should till factor for it. Budget roughly 0.86% of your sale price for it.
- Assuming you owe no tax without checking. The exclusion only applies if you’ve lived in the home long enough.
- If you rented the home and forgot about depreciation, that deduction has to be paid back when you sell.
- If you are not keeping receipts for the improvements, like a new roof or kitchen renovation… these increase your home’s cost basis and can reduce taxable gain.
When to Take Professional Help?
You can handle a basic home sale without an accountant. But it is better to call a real estate attorney if the home was ever a rental property, you owned it for less than two years, made big upgrades, and want to document them properly, or you are planning to buy another investment property through a 1031 exchange. A short conversation can save you thousands later.
Selling to a Cash Buyer and How It Affects Your Taxes
If you sell your Detroit home to a cash buyer like Money Team Properties, things are much different… you pay ZERO closing costs (including transfer taxes), however, you still may pay capital gains tax if you made a profit.
The main difference is speed; cash buyers often close faster, which means your taxes may fall into the same tax year instead of the next. You can still claim the home sale exclusion for $250k/$500k if you have lived in the property long enough, so even a quick cash sale doesn’t automatically mean a higher tax bill.
Bottom Line
Selling a home in Detroit comes with a few tax details worth understanding, but none of it has to be challenging. Simply, you should know what you’ll owe in transfer taxes, check if you qualify for the home sale exclusion, and keep good records of what you’ve spent on improvements.
Whether you sell through an agent or a cash buyer, being informed helps you walk into closing confident and prepared.