Keep the Michigan House, Rent It, Buy the Next One
Program and regulatory figures verified September 19, 2026. Details change; confirm your scenario with us.
Renting the departing home is a real structure. In Michigan it is also a tax decision with a backdated effective date, which is why it belongs early in the conversation.
What it actually costs
MCL 211.7cc(5) is unusually direct. If property subject to a conditional rescission is leased, the local tax collecting unit shall deny that conditional rescission, and the denial is retroactive and effective on December 31 of the year immediately preceding the year in which the property is leased.
The retroactivity is the part that catches people. An owner who lists in March, waits through the summer and signs a tenant in September does not lose the exemption from September. They lose it for the entire tax year, reaching back to the previous December 31.
That is not a reason never to rent. It is a reason to decide deliberately, early, and with the number in front of you.
When it still makes sense
When the departing home covers its own payment comfortably at market rent, when you have the reserves, and when you would rather hold a Michigan asset that is appreciating than sell it.
That last point has real weight this year. Values rose in every Michigan metro we track, several by more than 6%. Holding an appreciating asset is a legitimate strategy, and if you are going to hold it long term anyway, the exemption question is a one-time cost rather than a recurring one.
What does not make sense is drifting into it. Listing the house, losing patience, and taking the first tenant who appears is how owners incur the retroactive denial without ever having weighed it.
What changed federally
Fannie Mae restructured rental income policy in Announcement SEL-2026-08, dated September 2, 2026, mandatory for applications dated on and after November 1, 2026. Departing residences are governed by B3-3.8-05.
Lease agreements are not permitted for any departing residence. Market rent must come from a complete appraisal including market rents, a Form 1007 comparable rent schedule, or a market analysis supported by at least three comparable rentals.
The calculation is gross market rent times 75%, less that property's full PITIA. A positive result offsets the departing residence's own payment; it does not become qualifying income. Six months of PITIA reserves apply where property-management experience is under 12 months.
The interaction that works in your favour
These two rules fit together unusually well in Michigan.
Because the federal rule no longer accepts a lease and instead takes market rent from an appraisal or Form 1007, you can establish what the property would rent for without a tenant ever signing. And because the Michigan penalty is triggered by leasing rather than by analysis, running that number costs you nothing.
So the sensible order is: get the market rent documented, price the structure including the lost exemption, then decide. The decision only becomes irreversible at the tenancy. See the Form 1007 page.
Compare the alternatives on the structures page.
Exemption eligibility, conditional rescission filings and uncapping questions are legal and tax matters. Your local assessor, your CPA or a Michigan attorney own those answers. We flag them because they change the numbers we underwrite.
Frequently asked questions
Can I rent out my Michigan house and keep the principal residence exemption?
No, not on a property carrying a conditional rescission. MCL 211.7cc(5) provides that if the property is leased, the local tax collecting unit shall deny the rescission, and the denial is retroactive to December 31 of the year immediately preceding the lease.
When exactly do I lose the exemption if I rent?
Back to December 31 of the year before the lease. So signing a tenant partway through a tax year costs the exemption for that entire year, not just from the date the tenancy begins.
Can I find out what my house would rent for without losing the exemption?
Yes. Under Fannie Mae B3-3.8-05, market rent is established from a complete appraisal including market rents, a Form 1007, or an analysis supported by at least three comparable rentals, none of which requires a tenant. The Michigan penalty is triggered by leasing, not by valuing.
How much rental income would count?
Gross market rent times 75%, less that property's PITIA. A positive result offsets the departing residence's own payment rather than adding to qualifying income, and six months of PITIA reserves apply where property-management experience is under 12 months.
Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about financing, not a loan commitment and not legal, tax, or real estate advice. Principal residence exemption eligibility and conditional rescission rules depend on your facts; your local assessor, your CPA or a Michigan attorney, and your real estate agent each handle their own part. Loans are subject to borrower and property qualification.