If you own a house or another real estate property in the Prairie State and are thinking about selling, it is crucial to understand how local and state laws can affect your net proceeds. Learn how real estate taxes in Illinois work, how it compares with other states, and how to report your home sale.
The 4 Tax Layers of an Illinois Property Sale
Individuals selling houses or property in Illinois may owe multiple types of taxes calculated by the title company handling the sale. In addition to potential federal taxes, the taxes owed in Illinois fall in the general category of “transfer taxes,” meaning the state and local governments require real estate sellers to pay taxes to transfer their property to another party (55 Illinois Compiled Statutes 5/5-1031).
These transfer taxes function like sales taxes and vary from locality to locality. It is illegal to complete the transfer of a house before paying transfer taxes in Illinois. If you need help calculating the taxes you owe on a property sale in Illinois, Tax Shark’s team has the resources to guide you. Here’s what to expect on the taxes you’ll owe on a property sale in Illinois.
Federal Capital Gains Taxes
- Rate: Varies depending on the taxpayer’s income, filing status, and residential status.
While this topic covers Illinois taxes, understanding your federal tax liability for capital gains when selling a property is wise because it impacts how much money you make overall.
Under federal law (Internal Revenue Code (IRC), 26 USC 1), taxpayers may owe taxes on capital gains realized during the year. IRC Paragraph 1001 outlines the conditions used to compute the gains and calculate the federal capital gains taxes owed.
However, a specific situation may allow the seller to qualify for a partial or complete exemption from federal income taxes from that gain: Whether the house sold qualifies as a primary residence. According to the IRS, the capital gain tax rates vary from 0% to 28%, depending on filing status and yearly income. The most common rate paid by American taxpayers is 15%.
According to IRC Paragraph 121, the seller of a qualifying primary residence may exclude up to $250,000 of the gains made on the sale if they can pass the “ownership and use tests.” The seller must have owned the residence and used it as their primary residence for at least two years. The seller must not have excluded gains from selling another house in the last two years.
If the seller is married and filing jointly, the exclusion amount limit rises to $500,000 if either spouse passes the ownership test, both spouses pass the use test, and neither spouse is excluded the gains from the sale of another house in the last two years.
Example: Jerome is filing as single and has owned and lived in a residential property for the past six years in Springfield. When he decides to sell the home, he gets $168,000. He owned no other properties at the time and used the house he sold as his primary address for the past two years, making the house qualify as his primary residence. Jerome may exclude the entirety of the gains realized from federal income taxes, as the amount is under the $250,000 limit.
The Illinois State Transfer Tax
- Rate: Varies depending on property value; $0.50 for every fraction of $500 in the sale price (approx. 1%).
Per Illinois law (35 ILCS 200/31-10), the state imposes a tax rate of $0.50 for every fraction of $500 (or $1 for every $1,000) in the property’s final sale value. The tax rates are calculated based on the transfer price and do not include title or closing costs. The state will collect these taxes on all properties and from any individual or entity, provided they do not meet one of the exemptions listed under Section 31-45.
Example: Jerome sold his house in Springfield on March 12th, 2022, to another private party intending to use it as their private residence. The home’s final sale value is $168,000, so Jerome will owe $168 of state transfer taxes to the State of Illinois.
The County Transfer Tax
- Rate: Varies depending on property value; $0.25 for every fraction of $500 in the sale price (approx. 0.5%).
The county transfer tax is an additional transfer tax imposed by all Illinois counties on resident property sellers. It is separate from the state transfer tax. Sellers must also pay the county transfer tax to complete the sale. According to state law (55 ILCS 5/5-1031), each county in Illinois imposes the same county transfer tax rate of $0.25 for every fraction of $500 (or $1 for every $2,000) in the property’s final sale value.
Example: Jerome’s residential property is in Springfield, IL, meaning he owed county transfer tax to Sangamon County when he sold it. The home’s final sale value is $168,000, so Jerome will owe $84 of county transfer taxes to Sangamon County.
The Municipal Transfer Tax
- Rate: Varies by the municipality.
Besides the state and the seller’s home county, an individual buying or selling real estate in Illinois may also owe transfer taxes to the local municipality if they have home rule status. While most municipalities require the seller to pay these taxes, others may impose them on the buyers or split them between buyer and seller.
To find your local municipal real estate transfer tax rates and determine which party is responsible for paying them, consult your municipality’s official website. Note that not all municipalities may impose real estate transfer taxes.
Example: When Jerome sold his personal property in Springfield, IL, on March 12th, 2022, he was not subject to municipal transfer taxes because the municipality did not impose any real estate transfer taxes at the time of the sale.
Municipality Add-on Charges
In addition to all other transfer taxes, select municipalities in Illinois may impose add-on charges to confirm real estate transfers, such as inspection fees or transfer stamps. They may also charge fees for reinspections if you made repairs to the home after an initial inspection from the buyer. Consult your local laws for more information.
Example: The City of Markham, IL, levies a range of inspection fees on the sellers of real estate property: $125 for residential properties, $200 for commercial properties, and $50 for water transfer stamps (Markham Code of Ordinances 151.30(C)). Reinspections are mandatory, and reinspection fees are $50 for residential properties and $100 for commercial properties.
What Are the Illinois Real Estate Transfer Taxes?
All applicable transfer taxes imposed by the state, county, and local governments must be paid when selling a property in Illinois. In most cases, the seller is responsible for paying most of these taxes, although municipalities may request the buyer or both buyer and seller to pay their transfer taxes.
In a typical sale of real estate property, a seller should expect to pay the following transfer taxes:
- State transfer tax, at a rate of $0.50 per fraction of $500
- County transfer tax, at a rate of $0.25 per fraction of $500
- Municipal transfer tax, which varies from city to city
- Additional taxes, in the form of add-on charges and costs associated with municipal transfers (e.g., inspection fees), which may also vary from city to city
Example: When selling a residential property in downtown Chicago with a final sale price of $520,000, the following taxes will be levied:
- $520 in state transfer taxes, paid to the state of Illinois
- $260 in county transfer taxes, paid to Cook County
- The City of Chicago levies a total of $5.25 per fraction of $500 split between the buyer ($3.75) and the seller ($1.50). For this property, the City will collect a total of $5,460 in municipal transfer taxes: $3,900 from the buyer and $1,560 from the seller.
In total, local and state government bodies in Illinois would collect $6,240 in transfer taxes for this property at this specific location, corresponding to 1.2% of the transfer price.
What is the Tax Rate on Property Under the Illinois Transfer Law?
According to the Illinois Combined Statutes (35 ILCS 200/31-10), the state collects taxes on the transfer of any property located in Illinois. The state transfer tax is $0.50 per fraction of $500 in the final transfer price and must be paid by the seller. For instance, the state would collect $100 from the seller of a property sold for $100,000.
This tax rate applies regardless of the property type, with one exception listed under the law. If the property transferred is subject to a mortgage, the remaining outstanding balance at the time of the transfer. is not counted when calculating state transfer tax rates.
Example: After living in a home in the City of Peoria, IL, for six years, Kay decides to sell it to another private entity, completing the transfer for a price of $210,000. At the time of the transfer, the house still had an outstanding mortgage balance of $30,000.
For transfer tax calculation purposes, the mortgage balance ($30,000) is subtracted from the house’s total sale price ($210,000), meaning Kay owes transfer taxes on the remaining $180,000. At a rate of $0.50 per fraction of $500, she owes the state $180 in transfer taxes.
Exemptions from the Illinois Real Estate Transfer Tax Law
Under ordinary circumstances, the real estate transfer tax law applies to all properties transferred in the State of Illinois. However, the Illinois Compiled Statutes (35 ILCS 200/31-45) defines a list of exemptions and exclusions from the state tax. If you are a seller and your situation meets one of these exclusion conditions, you are exempt from paying the transfer tax.
Transfers Made Before a Specific Date
According to Section 31-45, subsection (a), deeds representing transfers conducted before January 1, 1968, are exempt from the transfer tax law if the transfer has been recorded after that date. The cutoff date for trust documents is January 1, 1986.
Example: The seller of a property sold in Naperville, IL, for $90,000 on July 19th, 1967, and recorded on January 9, 1968, is exempt from the transfer tax.
Transfers to Government, Charity, Religious, and Educational Organizations
Section 31-45, subsection (b) specifies that the transfer tax does not apply to transfer deeds and trust documents for real estate property that:
- Was acquired by or from a government entity
- Was transferred from one government entity to the next
- Was transferred to or from a charity, religious, or educational organization
The law specifies that the tax exemption does not exempt from filing a declaration unless the grantee is the Administrator of Veterans Affairs (V.A.) following a foreclosure.
Example: If the owner of a property located in Illinois sells it to the state government through the Sell 2 Illinois program, they are exempt from paying the transfer tax.
Deeds or Trusts to Secure Debt
Section 31-45, subsection (c) specifies that deeds or trusts for transfers of real estate property securing debts or obligations are exempt from the transfer tax. Per subsection (g), the exemption also applies to deeds and trust documents releasing real estate property that are securities for a debt or another obligation.
Example: The seller of a real estate property on a deed to secure debt in Illinois does not have to pay state transfer taxes.
Deeds or Trusts With Low-Value Considerations
Section 31-45, subsection (e) states that if the actual consideration in the deed or trust is less than $100, the seller is exempt from paying transfer taxes.
Example: If the owner of a property in Illinois decides to sell it to another party for a symbolic value of $1 (sometimes referred to as a “love and affection” consideration by real estate attorneys), they do not need to pay state transfer taxes.
A tax deed provides ownership of a foreclosed property. Per Section 31-45, subsection (f), real estate property on tax deeds is not subjected to the state transfer tax.
Example: The seller of a house on a tax deed in Chicago, IL, does not have to pay state transfer taxes when transferring it to its new owner.
Deeds of Partition
A deed of partition divides a property into multiple shares. According to Section 31-45, subsection (h), properties sold on a deed of partition are exempt from the state transfer tax.
Example: A property owner in Peoria, IL, sells a house on a partition deed following partition-by-sale proceedings. The seller is exempt from state transfer taxes.
Transfers Following Corporate Reorganization
A corporation may be exempt from paying Illinois real estate transfer tax if:
- It is undergoing corporate reorganization as defined by the Internal Revenue Code, or
- It is undergoing reorganization bankruptcy, as defined by Title 11 of the Federal Bankruptcy Act ( known as a “Chapter 11 bankruptcy”).
According to Section 31-45, subsection (i), corporations in either of the two situations defined above do not need to pay state transfer tax for properties on deeds or trusts created during a corporate reorganization process (merger, consolidation, transfer, sale).
Example: A corporation based in Illinois files for Chapter 11 bankruptcy and undergoes corporate reorganization. During the process, the corporation transfers property to another entity. The corporation is exempt from paying transfer tax for this transfer.
Transfers Due to Corporate Stock Cancellation
Per Section 31-45, subsection (j), if a subsidiary corporation transfers property to its parent corporation, the subsidiary is exempt from the transfer tax if it is surrendering or canceling the subsidiary’s shares.
Example: Alpha Corporation, based in Chicago, IL, is a subsidiary of Bravo Corporation, based in Springfield, IL. Alpha Corp. transfers property to its parent Bravo Corp to cancel a part of its corporate shares. In this situation, the law exempts Alpha Corp. from paying transfer tax.
Deeds Issued to Mortgage Holders
According to Section 31-45, subsection (l), deeds for real estate property issued to mortgage holders (as defined in 735 ILCS 5/15-1207) are not subject to the state transfer tax if the deed is issued following a mortgage foreclosure proceeding or a transfer in lieu of foreclosure.
Example: A property in Peoria, IL, is subjected to a mortgage foreclosure proceeding, and the deed is transferred to the holder of a mortgage. The entity issuing the deed is exempt from paying the transfer tax.
Home Ownership Made Easy (HOME) Act
According to Section 31-45, subsection (m), deeds and trusts for primary residences sold through the Illinois Home Ownership Made Easy (HOME) Act are exempt from the transfer tax.
Example: A real estate agent participating in the Illinois Home Ownership Made Easy (HOME) Act sells a house as a primary residence to a buyer. The seller is exempt from paying the transfer tax.
Illinois Transfer Taxes vs. Other U.S. States
Compared to other states, Illinois’s transfer taxes on property are in the average range, especially considering New York state transfer taxes. In general, Illinois imposes a $1 per $1,000 on the sale price for the state and an additional $0.50 per $1,000 of the sale price to the local county. While some counties may charge more, this still puts Illinois at an average price in terms of property transfer taxes.
In Pennsylvania, the standard is a 1% tax to the state and another 1% tax to the local municipality.
Example: A home sold for $250,000 in Pennsylvania would require paying a total of $5,000 in transfer taxes: $2,500 to the state and $2,500 to the local municipality, one payment from the seller and the other from the buyer.
In comparison, a house sold for the same price in Chicago, IL, requires paying a total of $3,000 in transfer taxes: $250 to the state, $125 to the county, and $2,625 to the municipality. The latter of which would be split between the buyer ($3.75 per $500, or $1,875) and the seller ($1.50 per $500, or $750).
Ohio has a mandatory transfer tax of $1 per $1,000 of property value, but up to an additional $3 per $1,000 of property value may be taxed by individual counties.
Example: A home is sold for $200,000 in a county that imposes an additional real property transfer tax of $2 per $1,000 of property value. The property transfer tax on the home sale is $600: $200 from the state and $400 from the county.
A house sold for the same price in Chicago, IL, would have a total of $2,400 in transfer taxes: $200 paid to the state, $100 to the county, and $2,100 to the municipality. The municipal transfer taxes are split between the buyer ($1,500) and the seller ($600).
Georgia taxes the first $1,000 at a rate of $1 and $0.10 for each additional $100.
Example: A home sold for $300,000 in Georgia will have a transfer tax of $300: $1 tax on the first $1,000 and $299 on the remaining $299,000.
A home sold for the same price in Chicago, IL, will require paying a total of $3,600 in transfer taxes: $300 levied by the state, $150 by the county, and $3,150 by the municipality. The municipal transfer taxes are split between the buyer ($2,250) and the seller ($900).
Illinois Transfer Tax Rate for Foreign Citizens
Foreign citizens investing in American property may be subject to the IRS withholding a percentage of the home price. The percentage withheld depends on the value of the property and its intended use.
If the owner intends to use the property as a primary residence and the property is valued at $300,000 or less, there is 0% withholding requirement. If the property is between $300,000 and $1,000,000, there is a 10% withholding requirement. Any property greater than $1,000,000 or not intended for use as a primary residence is subject to 15% withholding.
How to Report Your Home Sale in Illinois for Taxes
You must report the sale of your home on your main tax return if there is a gain or if there is an exclusion but you do not want to exclude the sale. To report the sale of a home for tax purposes, use a Form 8949 and a Schedule D Form 1040 and check how long you’ve held the property.
According to the IRS instructions for Form 8949, the holding period for short-term capital gains is one year or less, whereas the holding period for long-term capital gains is over one year.
- If you held the property for a year or less, check box C in Part 1 of Form 8949 and report the property information. If longer than a year, check box F in Part 2 and report the property information there.
- If you had a financial gain from the property and can exclude it, enter H in column (f) and write the amount as a negative number in parenthesis in column (g).
- Once Form 8949 is completed, fill out the corresponding areas on Schedule D Form 1040.
When entering the property’s information, you must fill out each column in the corresponding Part with the relevant information.
- Enter a short description of the property in column (a).
- Enter the date you acquired the property in column (b) and the date you completed the sale in column (c).
- Write in the value corresponding to the proceeds in column (d). The IRS instructions describe the proceeds as the sales price exactly as shown on the form or statement.
- Write in the value corresponding to the total costs and basis for the property in column (e).
- Columns (f) and (g) can be left blank, unless you’ve received a Form 1099-B or 1099-S with incorrect information.
- Calculate the total gains or losses and enter the value in column (h).
- If you wish to report multiple home sales, repeat all of the above steps in a new row for each property.
What About Selling an Illinois Home You Inherited?
Illinois has no inheritance tax, so you will not be taxed when you receive the home. If you want to sell the home, you will be subject to standard taxes for selling a home, including transfer tax, property tax, and capital gains tax.
The capital gains tax can be excluded if you lived in the property for two years before selling and you have not used this exclusion within the past two years.
Here are the answers to some common questions about Illinois property transfer taxes when selling a residence.
No, you cannot deduct transfer taxes in Illinois.
Yes, you are still required to pay transfer taxes when you sell a second home.
Yes, transfer taxes are not based on the profit or loss of a home but on its fair market value.
If you use a 1031 exchange, the minimum period of ownership is two years.
In most cases, the seller is liable, but parties can often negotiate. Some cities also have their own transfer taxes which are paid by the seller, buyer, or by both.
Yes, as long as you follow 1031 exchange rules for like-kind properties.