Michigan requires that you include the gains realized on the sale of you Michigan home--even if those gains are exempt from being taxed on your federal return. Use this basic formula to calculate your gain:
Selling price - original cost - cost of additions and permanent home improvements - cost to sell home (i.e. commissions, appraisal, etc.)
For example, Gary originally bought his Michigan home many years ago for $100,000. Later on, he paid $20,000 to add a garage. Finally, he sold his home in 2020 for $150,000, paying $1,000 of selling expenses in the process.
We calculate his gain using formula above: 150,000 - 100,000 - 20,000 - 1,000 = 29,000.
Even though Gary can exclude this $29,000 gain from his federal return, it's a part of his 2020 Michigan Household Income and so he must report it in attempting to claim the Homestead Credit.