Short-Term Rental Taxes in Michigan: Complete Guide for STR Investors
4.25% flat state income tax | Conforms to federal bonus depreciation | 6% state use tax on accommodations + local lodging taxes | Top markets: Traverse City, Sleeping Bear Dunes, South Haven, Mackinac Island, Petoskey | Strong lakefront cabin cost seg profiles
Michigan has quietly become one of the Midwest's top STR investment destinations. The Great Lakes shoreline offers hundreds of miles of lakefront properties, from the wine country around Traverse City to the sandy shores of South Haven and St. Joseph. The Upper Peninsula adds adventure tourism around Pictured Rocks and the Keweenaw Peninsula. Michigan's tax environment — moderate flat rate, full bonus depreciation conformity — is straightforward and investor-friendly.
Michigan State Income Tax
Michigan's 4.25% flat income tax applies uniformly to all taxable income. For STR investors, net rental income (after expenses including depreciation) is taxed at this flat rate. Michigan's flat structure means there's no advantage to income spreading from a rate perspective. The simplicity is a benefit for investors with complex rental portfolios, and the moderate rate means cost segregation deductions have a clear quantifiable state tax benefit.
Michigan STR Use Tax and Local Lodging Taxes
| County / Market | State Use Tax | Local Lodging Tax | Approximate Total |
|---|---|---|---|
| Grand Traverse County (Traverse City) | 6% | 5% | ~11% |
| Leelanau County (Sleeping Bear Dunes) | 6% | 3% | ~9% |
| Benzie County (Crystal Lake, Frankfort) | 6% | 3% | ~9% |
| Allegan County (Saugatuck/Douglas) | 6% | 5% | ~11% |
| Van Buren County (South Haven) | 6% | 3% | ~9% |
| Mackinac County (Mackinac Island) | 6% | 5% | ~11% |
| Ottawa County (Holland/Grand Haven) | 6% | 3% | ~9% |
| Emmet County (Petoskey/Harbor Springs) | 6% | 5% | ~11% |
Traverse City: Michigan's STR Crown Jewel
Traverse City sits at the tip of the Old Mission Peninsula on Grand Traverse Bay — one of the most picturesque settings in the Midwest. The market is driven by the Traverse City wine country (200+ wineries in the Leelanau and Old Mission appellations), cherry orchards, Sleeping Bear Dunes National Lakeshore (20 minutes away), and the National Cherry Festival in July. Properties command premium rates: lakefront homes and wine country retreats regularly achieve $400–$900+/night in peak season.
Other Premier Michigan STR Markets
- Sleeping Bear Dunes National Lakeshore (Leelanau/Benzie Counties): One of the most beautiful stretches of Great Lakes coastline; limited lodging supply relative to demand; strong occupancy for summer and fall color season
- South Haven / St. Joseph (Van Buren County): Lake Michigan beachfront market; 2 hours from Chicago; excellent summer demand; accessible price points relative to Traverse City
- Saugatuck/Douglas (Allegan County): Art colony meets beach town; popular with Chicago and Detroit weekend travelers; boutique feel with strong year-round demand
- Mackinac Island: Car-free island accessible by ferry; unique seasonal market; higher regulatory complexity; niche but highly recognizable brand that commands premium rates
- Petoskey/Harbor Springs (Emmet County): Upscale resort community; affluent Chicago families; Bay Harbor Golf Club drives premium demand
Cost Segregation in Michigan: The Lakefront Profile
Michigan lakefront STR properties have compelling cost segregation profiles. Dock and pier infrastructure (15-year land improvement), lakefront landscaping and seawalls (15-year), boat lifts, outdoor entertainment areas, and furnished interior packages all contribute to short-life asset percentages. Lake Michigan shoreline properties frequently achieve 20–30% of purchase price in 5-year and 15-year assets. With Michigan's full bonus depreciation conformity, a $600,000 Traverse City home with $150,000 in bonus-eligible deductions saves approximately $55,500 federally (at 37%) plus $6,375 in Michigan state tax (at 4.25%) — a combined first-year benefit of nearly $62,000.
Estimate Your Michigan STR Tax Savings
Michigan lakefront properties + full bonus depreciation conformity = powerful cost segregation results. Get your free estimate.
Get My Free Estimate