Michigan Transfer Tax and 1031 Exchange Deeds

Quick answer

A Michigan 1031 exchange does not make a replacement-property deed transfer-tax free by itself. If a deed or other conveyance transfers Michigan real estate for consideration, Michigan’s State Real Estate Transfer Tax Act can apply unless the deed fits a specific exemption under MCL 207.526.

That is the key point when a replacement property deed passes through a qualified intermediary, exchange company, or other exchange structure. The federal 1031 rules ask whether you completed a qualifying exchange and avoided actual or constructive receipt of money. Michigan’s recording question asks a different thing: does the written instrument being recorded fall within the state transfer-tax act, and has a proper exemption claim been made?

For a routine direct deed from the seller to the exchanger, the recording team usually reviews one deed. If the exchange company or intermediary appears in the chain of title and deeds the property to the exchanger, each recorded instrument deserves its own transfer-tax review. Do not assume the second deed is exempt only because the federal transaction uses a qualified intermediary.

How Michigan transfer tax works

Michigan’s State Real Estate Transfer Tax Act imposes a state tax on the transfer of an interest in real property. Treasury guidance describes the tax base broadly: the act applies to “the conveyance of title to or other transfer of a present interest or beneficial interest or any other interest in real property by any method,” and SRETT also applies to deeds or instruments of conveyance of property or any interest in property, for consideration.

The Michigan Legislature keeps the exemptions in MCL 207.526. The list includes, among others, written instruments where the value of consideration is less than $100, security instruments, leases, certain government conveyances, certain family conveyances, court-ordered transfers without specified monetary consideration, boundary-line corrections without monetary consideration, instruments confirming title already vested, and certain entity transfers where ownership proportions or beneficial ownership do not change.

Michigan Treasury’s SRETT FAQ adds two practical recording points. First, showing consideration on the deed does not automatically make the transfer taxable if the deed states a proper exemption. Second, a transfer generally occurs on the date the deed or instrument is dated or acknowledged, unless evidence shows later delivery.

So the Michigan analysis starts with the deed, not the federal label. A 1031 exchange can explain why the parties structured the closing through an intermediary, but the recorder, title company, and preparer still need an exemption citation or tax treatment that matches Michigan law.

1031 exchange deed scenarios

Federal reporting runs through IRS Form 8824. The IRS instructions say taxpayers use Parts I, II, and III of Form 8824 to report each exchange of business or investment real property for real property of a like kind and to figure deferred gain. For a delayed exchange, the replacement property must be identified within 45 days after the relinquished property is transferred, and the replacement property must be received by the earlier of the 180th day after that transfer or the due date, including extensions, of the tax return for the transfer year.

A qualified intermediary often helps with the federal safe harbor. Treasury Decision 9935 describes the current regulation: qualified-intermediary safe harbors prevent actual or constructive receipt only when the exchange agreement limits the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the money or non-like-kind property held by the intermediary.

That federal safe harbor does not answer Michigan’s deed-tax question. Use this scenario map at the replacement closing:

Replacement-property scenario	Michigan transfer-tax question	What to verify
Seller deeds directly to the exchanger	Is the deed an instrument of conveyance for consideration?	Whether SRETT is paid or a specific MCL 207.526 exemption is stated on the deed.
Seller deeds to the qualified intermediary, then the intermediary deeds to the exchanger	Does each deed transfer an interest in Michigan real property?	Review each instrument separately; do not treat the exchange-company deed as exempt without a Michigan exemption basis.
Deed uses nominee, assignment, or exchange-company language but title goes directly to the exchanger	Does the recorded instrument convey title or another present or beneficial interest?	Match the recorded deed and any assignment documents to the SRETT rules before recording.
Entity-owned replacement property moves between an LLC and its members	Do the same persons hold ownership interests in the same proportion, or did beneficial ownership stay unchanged?	Check MCL 207.526(p) and Michigan Treasury’s SRETT exemption guidance.
Corrective deed after closing	Does the deed merely confirm title already vested or correct a flaw in title?	Check MCL 207.526(n) and keep proof that the correction did not transfer new value.

Exemption decision table

The table below maps common 1031 replacement-property recording questions to the Michigan authority to check. It does not decide the answer for your deed. It gives your title officer, preparer, or counsel the first place to look.

If the deed says…	Ask this before recording	Primary Michigan source to verify
The exchange company conveys the replacement property to the taxpayer	Is this a deed or instrument of conveyance for consideration, or does a specific exemption apply?	SRETT Act scope; MCL 207.526 exemption list.
The deed claims no tax because consideration is nominal	Is the value of the consideration for the property less than $100?	MCL 207.526(a).
The instrument secures financing or releases a security interest	Is it a written instrument given as security or an assignment or discharge of the security interest?	MCL 207.526(d).
The instrument transfers a leasehold interest	Does it evidence a lease or transfer of a leasehold interest?	MCL 207.526(e).
A quitclaim deed corrects a title problem after the exchange	Does it confirm title already vested, including a quitclaim deed to correct a flaw in title?	MCL 207.526(n).
An LLC or partnership is moved into or out of the ownership chain	Are the same persons holding ownership interests in the same proportion, or is there a reorganization with no beneficial ownership change?	MCL 207.526(p); Michigan Treasury SRETT exemption guidance.
The exemption is stated while consideration also appears on the deed	Has a proper claim of exemption been indicated?	Michigan Treasury SRETT FAQ.

County recording checklist

Before the replacement deed goes to the county register of deeds, collect the documents that show both the 1031 structure and the Michigan recording position.

1. Review the exact grantor and grantee on every deed in the chain. If the exchange company or intermediary appears as grantor or grantee, flag that deed for its own SRETT review.
2. Identify the Michigan exemption, if any, by citation. Michigan Treasury’s FAQ says a proper claim of exemption must be indicated for a transfer to be exempt from SRETT.
3. Confirm the consideration treatment. If the deed lists consideration, that fact alone does not automatically subject the deed to SRETT, but the exemption claim must stand on its own.
4. Check the Michigan SRETT forms page. Treasury lists Form 2705, Real Estate Transfer Valuation Affidavit; Form 2719, Return for Real Estate Transfer Tax; and Form 2796, Application for SRETT Refund.
5. Do not confuse SRETT documents with the separate assessor filing list. Michigan’s property-transfer forms page also lists Form 2766, Property Transfer Affidavit, and related property-transfer materials.
6. Keep the federal exchange file with the state recording file: Form 8824 workpapers, identification notice, settlement statements, exchange agreement, deed copies, and any exemption support.

If SRETT was paid and the parties later believe an exemption applies, Form 2796 covers an Application for SRETT Refund. The form says it must be filed within four years and 15 days from the date of sale or transfer of the property. Use that deadline only for the refund process described on that form; it does not replace the recording review before closing.

When to ask counsel

Ask Michigan counsel or an experienced title officer before recording if the deed chain includes more than one conveyance, the intermediary or exchange company takes title, the exemption relies on entity ownership proportions, the deed corrects a prior transfer, or the parties are trying to avoid tax based on nominal consideration.

Also ask for help when the federal 1031 structure is under pressure. If you receive money or other non-like-kind property before receiving the replacement property, Treasury Decision 9935 describes that as a sale or taxable exchange under the current regulations, even if you later receive like-kind replacement real property. That federal problem is separate from SRETT, but the same closing papers often reveal both issues.

The cleanest file answers two questions in writing: why the federal exchange should be reported on Form 8824, and why each Michigan deed either paid SRETT or fits a specific MCL 207.526 exemption.

Frequently asked questions

Does a 1031 exchange automatically avoid Michigan transfer tax?

What if the replacement deed comes from the exchange company?

Can the deed show consideration and still claim a Michigan exemption?

Which Michigan forms should the closing team check?

What federal deadlines still apply to a delayed exchange?

Educational disclaimer

This article is for educational purposes only and is not legal, tax, accounting, or title advice. Michigan transfer-tax treatment depends on the recorded instrument, consideration, exemption language, title path, and local recording practice. Have Michigan counsel, the title company, and a qualified tax professional review the deed and exchange documents before closing or filing.

Primary-source references

• MCL 207.526, written instruments and transfers of property exempt from tax
• Michigan State Real Estate Transfer Tax FAQ
• Michigan Act 330 of 1993, State Real Estate Transfer Tax Act
• Michigan Treasury SRETT exemption guidance
• Michigan State Real Estate Transfer Tax forms
• Michigan property-transfer forms
• Michigan Form 2796, Application for SRETT Refund
• IRS Instructions for Form 8824
• Treasury Decision 9935

Related reading

• Michigan 1031 Exchange Guide (state tax rules & deadlines)
• New York IT-2663 and 1031 Exchanges
• Virginia 1031 Exchange State Tax Guide
• What is a 1031 exchange? Rules, timeline & how it works