Taxes on Selling a House in Illinois: What to Expect

As a seller, if your property or circumstances don’t check all of the IRS exemption boxes, you may still qualify for a partial exclusion of gain. This can happen if the main reason for your home sale is a change in job location, a medical health issue, or an unforeseeable life event. For details on such circumstances, refer to IRS Publication 523.

If you’re going to be in a position to make a substantial profit, Matichyn recommends that you talk to a tax professional before we put your home on the market. “You’ll want to discuss this with your CPA. Find out what the tax will be, or what the amount or percentage you’ll have to pay, and if there are ways to reduce your costs.”

How to report your Illinois capital gains taxes

For your federal return, report your capital gains and losses by using U.S. Individual Income Tax Return (IRS Form 1040) and Capital Gains and Losses, Schedule D (IRS Form 1040). You can report your Illinois capital gains or losses on Illinois Form 1040.

Does Illinois charge a transfer tax?

Home sellers in Illinois will pay a transfer tax. This tax is a transaction fee tacked onto the sale of land or real property, like a home. The state-mandated transfer tax is 50 cents per $500 of the sale price (or one dollar for every thousand dollars). In addition, counties can impose an additional tax of 25 cents per $500 (or 50 cents for every thousand dollars).

For example, if you sell a home in Palatine for $300,000, you’ll pay $300 to the state of Illinois and $150 to Cook County. Currently, all Illinois counties, including Cook, DuPage, Kane, Lake, McHenry, and Will, charge 25 cents per $500 of the home’s purchase price. Home rule municipalities may also impose an additional real estate transfer tax.

Property taxes owed

Illinois has one of the highest effective property tax rates in the country. The good news is that the state-wide median home price is only around $315,000, so your tax bill may not be as high as it could be in other states with lower rates. What you’ll pay in property tax will vary by country.

“In Illinois, we pay property taxes a year behind,” Matichyn explains. “So a seller would have to give a credit to the buyers for the current year of them owning the home when the tax bill comes out.”

She adds that tax bills are sent out at different times of the year, depending on the county. “So if we’re closing on a home in September, the seller would have to give nine months’ worth of tax proration to the new buyer so then they can pay for the taxes whenever the tax bill comes out next year.”

Median property tax estimates by county

According to taxfoundation.org, here’s the annual median property tax you might expect to pay in Illinois’s seven largest counties:

• Cook County: $5,593
• DuPage County: $7,157
• Lake County: $8,040
• Will County: $6,441
• Kane County: $6,679
• McHenry County: $6,695
• Winnebago County: $3,585

In some smaller areas, the median property tax cost estimates are much less, such as Williamson County ($2,146) and Pope County ($1,531).

Matichyn says there are property tax exemptions, such as Cook County’s Homeowner Exemption, that can assist some property owners. “This is something that you can apply for when you’re looking to buy your primary residence. If you’re buying a home from an owner who has the home as a primary residence, a lot of times, you don’t have to apply; it just transfers over to you. It’s a good discount that every homeowner gets just by living in their home.”

She says there are additional tax incentives to seniors and veterans which can also help lower your taxes. “There are a lot of different ways to save on taxes. It just obviously depends on the specific situation and what county you are in. But if you’re buying an investment property, those incentives typically go away.”

A house-selling tax mistake to avoid in Illinois

Matichyn says one of the biggest mistakes she sees comes from homeowners who never research or question their property tax bills.

“I’ve seen quite a few properties where the taxes were high compared to what other homeowners pay in the area. The home is very similar — the square footage, all built around the same time — but one specific property will have really high taxes, which makes it harder for them to sell the house.”

She shares a situation where it turned out the seller’s home was being taxed unfairly.

“I had a home in Northwest Suburbs priced at $600,000, and the taxes were $20,000, which is way too high for that specific area. (Everybody else in the area had like $14,000.) The county had the square footage wrong. The home had vaulted ceilings, and the county counted it as if there was a roof or a second floor above the first floor, like a family room, when, in fact, it was just air. The owners never looked into that, and they just kept paying the taxes.”

Matichyn adds, “This is public record — you can look up what your neighbors are paying in taxes, and if you feel like your bill is quite high or higher than it should be, you can always appeal your taxes.”

Selling an inherited house in Illinois

Illinois is one of only a few states in the U.S. that still imposes an estate tax when someone dies. How much you’ll pay depends on the value of the property. The good news is that it’s only applied to estates worth more than $4 million.

When selling an inherited home, many of the same considerations apply as they do to selling any Illinois property, including property taxes. Where things differ is with capital gains.

Fortunately for heirs, the values of inherited assets are adjusted by what’s called a step-up in basis. This means that no matter how much an Illinois home has appreciated in value since it was originally purchased, a decedent’s heirs are not responsible for paying the taxes on those historical gains if they choose to sell the home. Rather, the property automatically converts to the current market value.

If an heir decides to sell the property right away for the assessed market value, then there are typically no gains. However, if an heir sells the property for more than the fair market value or chooses to hold onto the house for a while before selling and its value continues to appreciate during that time, then those are usually considered taxable gains.

Other selling expenses to anticipate in Illinois

• Title fees: These consist of title insurance and a title search.
• Settlement fees: These fees typically amount to about 1% of the home sale. This lump sum (often referred to as escrow fees) is issued by the title company, escrow company, or attorney facilitating the transaction’s closing.
• Agent commissions: Agent commission fees in Illinois are typically around 5.8%, and the buyer’s agent and seller’s agent split the commission. The seller typically pays for both agents’ commissions, but a recent court settlement by the National Association of Realtors is poised to change this, allowing buyers to negotiate Realtor fees directly with their agents.

Ways to prepare for taxes after an Illinois home sale

Taxes after a home sale don’t need to be a surprise or intimidating. Some simple steps can help you prepare for what’s to come if you decide to sell a home in Illinois.

• Know your home’s value: One initial step is to use an online Automated Valuation Model (AVM) tool like HomeLight’s free Home Value Estimator. Having a ballpark idea of what your Illinois home might be worth can help you calculate the potential capital gains from the home sale.
• Save the right documents: Another step is to know what tax documents you will need if you purchase or sell a home in Illinois. Consult with your tax advisor about the federal and state documents required to file and what tax breaks might be available for your selling situation.
• Find a top agent: Another pivotal step is to partner with an experienced Illinois real estate agent who can guide you through the home sale process. A qualified agent can help you understand the tax ramifications and ensure a favorable outcome by helping you maximize your proceeds. HomeLight data shows that the top 5% of real estate agents across the U.S. sell homes for as much as 10% more than average agents.

HomeLight makes it easy to find top-rated real estate agents in your Illinois market. We consider performance factors like the agent’s sale-to-list-price ratio and how that maps to price trends in your city so that you can find top agents who will put more cash in your pocket.

A top agent’s best advice to sell your Illinois home

Matichyn shares these parting insights for Illinois home sellers:

“The best advice would be to make sure the home is prepared, even though it is a seller’s market, it doesn’t mean that houses sell themselves. Even if it’s a great area and very desirable schools and price range, the better the home shows, the more money the buyer is willing to pay for it.”

To get the highest price for your home, Matichyn says the preparations don’t need to be extreme. “We’re not talking about investing tens of thousands of dollars. Sometimes a deep clean would do, or having a Realtor come through and give you a stage-in recommendation, what to donate, what to keep in the house, what to pack up, how to make sure the home shows bigger, brighter, and more updated.”

In closing, Matichyn says she tells her clients to put themselves in the buyers’ shoes. “Are there some small things you could do to make the home feel more updated and move-in ready? Buyers will pay extra for the ability to move in and not do anything.”

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Learn more about selling a house in Illinois

Here are some helpful guides and reference links from HomeLight’s Seller and Buyer Resource Center:

• Understanding Illinois’s Transfer Tax: A Quick Guide
• Selling a House As-Is in Illinois
• Recently Sold Homes in Illinois
• Illinois Single-Family Homes for Sale
• Newest Home Listings in Illinois
• Top Real Estate Agents in Illinois
• Top We Buy Houses For Cash Companies in Illinois

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