Understanding Illinois’s Transfer Tax: A Quick Guide
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
Selling your home in Illinois home can be tricky, but one thing you might have considered is the real estate transfer tax. These taxes are assessed whenever a property changes hands, acting as a charge for transferring the property title from the seller to the buyer. These taxes can affect your bottom line, so it’s important to have a strong understanding of what you might pay in your market.
Our guide will cover how transfer taxes work in Illinois, detailing what sellers can expect to pay when parting with their property and what exemptions might exist.
From state and county taxes to city-specific levies, we’ll cover how the Illinois transfer tax works and how to estimate these costs for your home sale.
Connect with a Top Agent to Help Maximize Value
Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.
Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Illinois area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are levied by state or local governments when the ownership of a property is transferred from one person to another. According to the Federal Trade Commission, this tax is applicable whenever the title of a property—essentially the legal documentation that confirms ownership—is passed to a new owner. The amount of tax owed can vary significantly depending on the property’s location, as each state, county, and city may have different tax rates and regulations.
These taxes serve an important role in local and state economies. Primarily, they help generate revenue that supports various public services and infrastructure projects. For property sellers, understanding the specifics of transfer taxes in their locality is crucial, as these can influence the overall cost of selling a property and the final proceeds from the sale.
Who pays for transfer taxes?
In Illinois, the responsibility for paying transfer taxes can vary widely depending on the specific location and the terms agreed upon in the real estate contract. Typically, the seller bears the burden of these taxes, which are calculated based on the sale price of the property.
However, it’s not uncommon for negotiation between the buyer and seller to lead to a different arrangement, where the buyer might agree to take on this cost. There is no standard in Illinois establishing which party is responsible for the tax, only that it gets paid.
As such, it’s important for both parties involved in the transaction to review their contract carefully and consult with a real estate professional to clearly understand who is responsible for these taxes before finalizing the sale.
What are the types of transfer taxes?
Transfer taxes will typically vary based on local guidelines but can generally be broken down into three categories — state, city, and county, depending on the state. Here’s a quick look at how it works in Illinois:
State transfer taxes
At the state level, Illinois imposes a transfer tax on the sale of real estate. In addition to this, counties can levy their own transfer tax; Cook County, for example, has its own tax for properties changing hands within its borders. Chicago also imposes its own transfer tax.
The tax is levied at a rate of $0.50 for each $500 of value or fraction thereof.
County transfer taxes
According to the state’s Department of Revenue, “Counties may impose a tax of 25 cents per $500 of value on real estate transactions. Home rule municipalities may also impose an additional real estate transfer tax.”
City transfer taxes
Taxes in Illinois will also vary based on the city where the transaction is conducted. For example, according to Chicago’s Department of Finance, the real estate transfer tax (RETT) is calculated at $5.25 per $500.00 of the transfer price, or fraction thereof, of the real property or the beneficial interest in real property. The buyer is responsible for $3.75, while the seller is responsible for $1.50.
Other transfer fees
In addition to transfer taxes, there are possible fees to consider, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.
If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.
Are transfer taxes deductible?
Unfortunately, transfer taxes do not qualify as deductible expenses on your income tax returns. However, there’s a silver lining for homeowners looking to mitigate their capital gains tax burden. Capital gains, the profit made from the sale of your property, are taxable by the federal government, much like the gains from selling other types of assets.
The IRS allows sellers to consider transfer taxes as part of the property’s selling costs. This means these taxes can be deducted from the final sale price of the home. By leveraging transfer taxes as selling costs, sellers can effectively reduce the capital gains tax owed on the profit from their sale, providing a strategic way to lower overall tax liabilities.
Transfer tax exemptions
Some sellers might find themselves eligible for exemptions from transfer taxes, depending on their specific circumstances and location.
These exemptions can significantly impact the overall cost of transferring property ownership. Here’s a brief overview of situations where transfer taxes may not apply:
- Property transfers involving governmental bodies or certain non-profit organizations.
- Transactions securing debt or other obligations.
- Amendments to previously recorded deeds without additional consideration.
- Sales priced under $500.
- Transactions where the deed is a tax deed.
- Releases of property that secures debt.
- Deeds of partition.
- Transactions between parent companies and their subsidiaries or between subsidiaries of the same parent due to business restructuring.
- Transfers from a subsidiary to its parent in exchange for stock cancellation or surrender.
- Properties involved in a bankruptcy plan confirmation.
- Properties in enterprise zones used for commercial or industrial purposes.
- Transfers to lenders resulting from mortgage foreclosures or in lieu of foreclosure.
- Properties under the H.O.M.E. Program.
- Transfers between legally recognized partners following court orders from separation or divorce proceedings.
Estimating transfer taxes for your home sale
Estimating the transfer taxes for your home sale in Illinois can seem daunting, but tools like HomeLight’s Net Proceeds Calculator make it easier. This calculator provides a quick estimate of your potential earnings from selling your home, factoring in essential costs such as closing expenses, agent commissions, and any necessary home improvements. By inputting specific details about your sale, you can get a clearer idea of what you’ll walk away with after all transactions are completed.
For a thorough assessment of your situation, including an accurate calculation of your transfer taxes and other closing costs, it’s best to work with a top real estate agent.
Header Image Source: (Zander Betterton/ Unsplash)
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