Direct Indexing in Michigan: Ford, GM, Stryker RSUs and the 28.05% Combined Rate

Michigan taxes long-term capital gains as ordinary income at a 4.25% flat rate — confirmed at that level for the 2026 tax year by the Michigan Department of Treasury in April 2026. No preferential state rate for investment gains, and uniquely, Detroit's 2.4% city income tax does not apply to capital gains under Act 284 of 1964. Combined with the 20% federal LTCG rate and 3.8% NIIT, top-bracket Michigan investors face a 28.05% combined rate regardless of where in Michigan they live. That's lower than California (37.1%), New York City (38.6%), Connecticut (30.79%), and Maryland (35.5%) — but 18% higher than Texas or Florida. For Michigan's concentration of automotive, medical device, and fintech equity compensation, that gap translates to real after-fee benefit: at $2M in taxable assets, direct indexing generates approximately $3,415 in annual net value after fees.

Michigan's capital gains tax: what you pay in 2026

Michigan imposes a flat income tax on all residents. The Michigan Department of Treasury announced in April 2026 that the individual income tax rate for the 2026 tax year will remain at 4.25% — the rate did not trigger the statutory reduction formula based on fiscal year 2025 general fund revenue data.¹

Michigan taxes long-term capital gains as ordinary income at the same 4.25% flat rate as wages, salaries, and interest income. There is no preferential capital gains rate at the Michigan state level.

Detroit imposes a 2.4% city income tax on residents (1.2% on non-residents earning income in Detroit). However, the Detroit city income tax applies only to compensation, net profits from business activity, and rental income under Michigan's Uniform City Income Tax Ordinance (Act 284 of 1964). Capital gains and investment income are excluded from the city tax base.² Grand Rapids (1.5%), Lansing (1%), Flint (1%), and other Michigan cities that impose city income taxes operate under the same Act 284 framework, with the same exclusion for investment income.

Compared to investors in no-income-tax states (Texas, Florida, Tennessee, Nevada): they pay 23.8% combined on long-term gains. Every dollar of direct indexing tax-loss harvesting saves 28.05 cents in Michigan versus 23.8 cents in Texas — an 18% premium per harvested dollar. Over $2M in taxable assets generating $30,000/year in losses, that gap produces $1,275/year in additional after-fee benefit.

Break-even table: MI vs. CA, NYC, and TX/FL

The following table shows estimated annual net benefit of direct indexing at a 1.5% annual harvest rate against a 0.25% fee premium over a low-cost ETF. The MI column uses the 28.05% combined rate (4.25% MI + 23.8% federal) for top-bracket investors. These are approximations — actual harvest rates vary significantly with market conditions.

Assumes 1.5%/year harvest rate, 0.25% DI fee premium over a low-cost ETF. MI column uses 28.05% combined rate (4.25% MI flat + 23.8% federal). CA uses 37.1% (13.3% CA + 23.8% federal). NYC uses 38.6% (10.9% NY state + 3.876% NYC city + 23.8% federal; top NYC bracket). TX/FL uses 23.8% federal only. Actual harvest rates vary significantly with market conditions. These are estimates, not guarantees.

Michigan's automotive corridor: the largest RSU opportunity in the Midwest

Michigan's automotive industry creates the largest concentration of corporate equity compensation in the Midwest — and one of the most complex direct indexing use cases in any state. Senior engineers, managers, and executives at Ford, General Motors, and Stellantis receive annual RSU and NQSO grants that vest as ordinary income. While direct indexing capital losses cannot offset that ordinary income at vest, they powerfully offset the capital gains that accumulate as appreciated shares are sold in later years.

• Ford Motor Company (F) — Dearborn. Ford is navigating the largest EV-transition capital allocation in its history, with the Ford Pro commercial vehicle division and BlueOval City manufacturing complex representing multi-year strategic bets. Senior employees at Ford's Dearborn engineering campus and corporate headquarters hold RSU grants denominated in F stock, which has experienced significant price volatility during the EV transition. The critical DI configuration: an employer-stock exclusion screen prevents the wash-sale rule from contaminating harvested losses during the 30-day window around RSU vest and share-sale events. At Michigan's 28.05% combined rate, each dollar of harvested loss saves 18% more than the same loss harvested in Texas.
• General Motors (GM) — Detroit. GM's Renaissance Center headquarters and technical development centers in Warren, Milford, and Pontiac employ thousands of engineers and executives with annual equity grants. GM's Ultium platform-era RSU grants have added a new layer of equity comp complexity as the company transitions battery, software, and manufacturing functions from legacy ICE vehicles. Senior GM employees building taxable portfolios from RSU proceeds benefit from both the employer-stock exclusion screen and — for those with K-1 income from PE fund investments — the loss bank as an offset against annual fund distributions.
• Stellantis (STLA) — Auburn Hills. The Chrysler, Dodge, Jeep, Ram, and Maserati parent company is headquartered in Auburn Hills and employs a large population of Metro Detroit executives with RSU compensation tied to STLA stock. Post-merger integration (FCA + PSA → Stellantis) created legacy cost-basis complexity for employees who received consideration in multiple equity forms. A specialist DI advisor can model the wash-sale interaction between legacy Chrysler/FCA equity and current STLA grants.
• EV supply chain: QuantumScape, Our Next Energy, Rivian Michigan operations. Michigan's EV battery and supply chain ecosystem includes startups and spin-outs with pre-IPO and post-IPO equity compensation that creates QSBS and RSU complexity alongside direct indexing deployment decisions. The business founder guide addresses post-exit DI deployment for founders who've realized QSBS gains and want to deploy proceeds into a tax-managed structure.

See the RSU holder guide for employer-stock wash-sale mechanics and timing strategy, and the NQSO guide for the ordinary-income-at-exercise phase that precedes LTCG accumulation on appreciated shares.

Stryker and the Kalamazoo medical device corridor

Kalamazoo is home to Stryker Corporation (SYK), a Fortune 500 medical device company with approximately $22 billion in annual revenue and a global workforce of over 50,000. Stryker's headquarters and a large portion of its engineering, finance, and executive teams are based in Kalamazoo — creating a dense population of long-tenure equity comp recipients with significant taxable account complexity.

Stryker's compensation structure is particularly relevant for direct indexing because:

• Long-tenure concentrated stock. Senior Stryker employees hired before major price appreciation events may hold concentrated SYK positions with deeply embedded gains — a situation where direct indexing functions as a loss engine to offset capital gains from a multi-year diversification program. See the concentrated stock guide for the full methodology.
• Employer-stock exclusion screens. An SYK-exclusion screen prevents wash-sale contamination when the employee's DI account harvests losses from S&P 500 stocks while simultaneously selling SYK shares from their compensation account — particularly relevant during Stryker's active acquisition periods when share price moves rapidly.
• Annual RSU vesting events. Current Stryker RSU recipients face the standard cycle: ordinary income at vest (not DI-offsettable) → long-term appreciation on post-vest shares → LTCG at sale → offsettable by the DI loss bank at Michigan's 28.05% combined rate.

The broader Kalamazoo–Battle Creek pharmaceutical corridor — including Pfizer's manufacturing operations (legacy Warner-Lambert Kalamazoo campus), Perrigo (Allegan), and Zoetis animal health spin-off employees — adds to the regional RSU and equity comp population. Dow Inc. (DOW), headquartered in Midland and a Fortune 500 chemicals and materials company, adds a further population of senior employees with complex equity compensation situations including annual PSU (performance stock unit) grants tied to return-on-capital metrics.

Detroit fintech: Rocket Companies, United Wholesale Mortgage, and the Gilbert ecosystem

Dan Gilbert's downtown Detroit redevelopment effort has created a concentration of fintech and financial services equity compensation that is underappreciated outside Michigan. Rocket Companies (RKT), United Wholesale Mortgage (UWMC, Pontiac), and the broader Bedrock real estate portfolio employ thousands of professionals in equity-linked compensation structures in the Detroit metro area.

• Rocket Companies (RKT). Rocket Mortgage, Rocket Loans, Amrock, and related entities operate under the Rocket Companies umbrella from their Detroit headquarters. Senior Rocket employees receive RSU grants in RKT, which has experienced significant price volatility since its 2020 IPO — both creating embedded gains for long-tenure holders and losses that in some cases can be deployed against other capital gain events. An RKT-exclusion screen in the DI account is critical for employees actively selling vested RSU shares.
• United Wholesale Mortgage (UWMC). The nation's largest wholesale mortgage lender is headquartered in Pontiac and employs a large Southeastern Michigan workforce with equity compensation tied to UWMC shares. The wholesale mortgage business is highly cyclical, and UWMC equity comp recipients face volatile cost-basis situations that make multi-year coordination with a DI loss bank particularly valuable.
• Private equity and venture capital in Detroit. Detroit's revitalization has attracted PE and VC investment from Rock Ventures, the Invest Detroit Foundation, and affiliated entities. Michigan-based PE fund LPs receive K-1 distributions with complex character (LTCG, §1231 gains, §1250 recapture) that benefit from a DI loss bank pre-positioned to absorb annual capital gain distributions. See the K-1 income guide for the pre-positioning strategy.

California and New York transplants relocating to Michigan

Michigan's cost of living, Ann Arbor's university and tech ecosystem, and the state's role in the EV transition have attracted a growing flow of California and New York professionals. For investors with large accumulated gains planning to relocate, domicile timing matters:

• From California (37.1% → 28.05%). Moving from California to Michigan reduces the combined LTCG rate by 9.05 percentage points. On a $3M gain event, that's approximately $271,500 in state tax savings. California's Franchise Tax Board actively scrutinizes high-income domicile changes — investors should establish Michigan domicile with a California-licensed tax professional before realizing large gains. Once Michigan domicile is established, a DI loss bank offsets capital gains at the 28.05% combined rate.
• From New York or New York City (38.6% → 28.05%). NYC residents who relocate to Michigan reduce their combined rate by 10.55 percentage points. New York's 183-day statutory residency test (183 days in NY plus a maintained permanent place of abode) can trap investors who retain a New York apartment or home.
• Building DI losses before the move. Investors who know they're relocating within 12–24 months but haven't yet changed domicile can begin DI in their current high-tax state. Losses harvested at California or NYC rates carry forward and follow the investor to Michigan, offsetting future gains at the 28.05% Michigan rate. Starting DI early in a high-tax state maximizes the pre-move loss bank at the highest per-dollar value.

QSBS in Michigan: rolling conformity with OBBBA caveats

Michigan uses rolling IRC conformity, meaning the state automatically follows the current Internal Revenue Code as amended. For the federal IRC § 1202 QSBS exclusion, this generally means that gains excluded federally under § 1202 are also excluded from Michigan state income tax for Michigan-resident founders and early investors.³

Under the OBBBA (2025), qualifying QSBS held for at least five years is 100% excludable up to $15 million per issuer federally. Michigan's rolling conformity would typically carry this exclusion through to the state level — meaningfully different from California, where QSBS gains are fully taxed at 13.3% regardless of federal exclusion status.

However, Michigan's October 2025 IRC conformity update decoupled from certain specific OBBBA provisions (including depreciation and interest deduction rules). Michigan investors with significant QSBS positions should confirm the precise scope of current §1202 conformity with a Michigan-licensed CPA before relying on state-level exclusion for their specific tax year. An Ann Arbor or Detroit-area startup founder selling qualifying QSBS stock can potentially owe $0 in Michigan state income tax on the federally-excluded portion — but tax professional verification is warranted given the OBBBA-era conformity complexity.

See the business founder DI guide for post-exit deployment of non-QSBS proceeds (earnouts, §1245 recapture, rollover equity) into a direct-indexed tax-managed structure.

No Michigan estate tax: §1014 step-up plays cleanly

Michigan abolished its state estate tax in 1999.⁴ There is no Michigan inheritance tax and no Michigan gift tax. The federal estate tax exemption of $15 million per person (permanently raised by OBBBA, 2025) with full spousal portability applies. For a married couple, the combined federal exemption is $30 million — covering the vast majority of Michigan estates.

This no-state-estate-tax environment lets a DI §1014 step-up strategy play cleanly:

• Harvest losses from underwater DI lots throughout life — the carryforward bank offsets capital gains from RSU-funded share sales, concentrated automotive stock exits, and K-1 distributions
• Let appreciated DI winners run unrealized, compounding without Michigan annual capital gains drag
• At death, all unrealized appreciation in the DI account resets to fair market value under §1014 — decades of accumulated embedded gain are permanently eliminated with no Michigan state tax consequence
• No state estate tax threshold to plan around (unlike Massachusetts at $2M, Minnesota at $3M, or Maryland at $5M), simplifying the §1014 step-up strategy

See the direct indexing and estate planning guide for §1014 mechanics, DAF gifting from appreciated DI lots, and the full OBBBA permanent exemption context.

Platform selection for Michigan investors

All major direct indexing platforms serve Michigan investors through their advisor networks. Key considerations by asset level and situation:

• Parametric Portfolio Associates (~$250K+ minimum, advisor-only) is the primary platform for Michigan automotive and medical device executives with multi-account wash-sale complexity — RSU vesting calendars at Ford, GM, Stellantis, and Stryker require cross-account monitoring that Parametric's advisor-coordinated model handles well. All-in cost at $1M+ is approximately 1.0–1.35%.
• Vanguard Personalized Indexing (~$250K minimum, 0.20% platform fee) is the most cost-efficient advisor-platform option for Michigan investors at the $250K–$2M range, delivering DI infrastructure through your RIA at a lower fee floor than Parametric or Aperio.
• BlackRock Aperio ($1M+ minimum, advisor-only) adds deep ESG screening and long/short extension strategies for UHNW Michigan investors — relevant for executives at automotive or chemical companies who want to screen sector exposure at the revenue-source level rather than index-exclusion level.
• JPMorgan TACS (~$250K minimum, 0.23% under $1M) is a viable advisor-tier alternative, particularly for investors with existing JPMAM or Chase Private Client relationships.
• Schwab Personalized Indexing ($100K minimum, 0.40% fee) and Wealthfront ($100K minimum, 0.25% all-in) are accessible entry points for Michigan investors without K-1 complexity or multi-custodian wash-sale risk. At 28.05% combined, both platforms produce clearly positive net outcomes at $500K+ in taxable assets.
• Altruist Personalized Indexing ($2,000 minimum, no added platform fee) is the emerging option for Michigan investors at the $50K–$250K range, offering DI access at the lowest minimum in the industry through Altruist-custodied RIAs.
• Frec ($20K minimum, 0.09% fee) suits Michigan investors with $150K–$500K in taxable assets seeking direct self-service DI at minimal fee drag.

Sources

1. Michigan Department of Treasury — State Individual Income Tax Rate for 2026 Tax Year Determined. The Michigan Treasury confirmed the 4.25% individual income tax rate for the 2026 tax year in April 2026, based on fiscal year 2025 general fund revenue data. Michigan does not provide a preferential capital gains rate — investment gains are taxed at the same 4.25% flat rate as wages and ordinary income. Cross-verified via Bloomberg Tax Daily Tax Report — State and ABC12 Michigan news.
2. Michigan Department of Treasury — City of Detroit Individual Income Tax. Detroit imposes a 2.4% city income tax on residents and 1.2% on non-residents earning compensation in Detroit, under Michigan's Uniform City Income Tax Ordinance (Act 284 of 1964). Capital gains, dividends, interest, and other investment income are excluded from the city income tax base. The same exclusion applies to all Michigan cities that impose city income taxes (Grand Rapids, Lansing, Flint, and others) under the same Act 284 framework. Verified via michigan.gov/taxes and countrytaxcalc.com Michigan City Income Tax Guide 2026.
3. Keystone Global Partners — 2026 QSBS by State: Eligibility Index. Michigan uses rolling IRC conformity and generally follows the federal § 1202 QSBS exclusion at the state level. However, Michigan's October 2025 IRC conformity update decoupled from certain OBBBA provisions. Michigan investors with significant QSBS positions should confirm current § 1202 conformity with a Michigan-licensed CPA before relying on state exclusion for their specific tax year. Cross-verified via marble.ai State OBBBA Conformity Status 2026 and thestartuplawblog.com 2026 QSBS State Conformity Guide.
4. SmartAsset — Michigan Estate Tax. Michigan abolished its state estate tax in 1999. There is no Michigan state estate tax and no Michigan inheritance tax or gift tax. The federal estate tax exemption of $15 million per person (permanently raised by OBBBA, 2025) with full spousal portability applies — no state-level threshold to plan around. Verified via estatetaxbystate.com Michigan Estate Tax and michiganestateplanning.com.
5. Tax Foundation — State Capital Gains Tax Rates, 2026. Michigan top LTCG rate: 4.25% flat (no preferential rate for long-term gains). TX and FL: 0%. IL: 4.95%. MN: 9.85%. CA: 13.3%. Federal LTCG + NIIT at top bracket: 23.8%. MI combined rate: 28.05%.
6. IRS Rev. Proc. 2025-32 — 2026 Inflation Adjustments. Federal LTCG thresholds for 2026: 20% rate at $545,500 (single) / $613,700 (MFJ). 0% rate: below $47,025 (single) / $94,050 (MFJ). NIIT threshold: $200,000 (single) / $250,000 (MFJ) — not inflation-adjusted.

Michigan income tax rate (4.25% flat) verified via Michigan Department of Treasury official announcement, April 15, 2026 and Bloomberg Tax. Detroit city income tax exclusion for capital gains verified via michigan.gov and Act 284. Federal LTCG thresholds per IRS Rev. Proc. 2025-32 for tax year 2026. OBBBA provisions reflect federal law enacted July 2025. QSBS Michigan conformity stated as general rolling conformity — verify with a Michigan-licensed CPA for your specific tax year, given October 2025 OBBBA decoupling provisions. Harvest rate estimates (1.5%/year) based on industry research and may vary significantly with market conditions. This page is informational only and does not constitute financial, tax, or legal advice.