Selling a home in Illinois involves more than deciding on an asking price and figuring out how much you may spend on repairs, commissions, and closing costs. Taxes can also affect how much money you actually keep once the sale is complete.
The exact tax impact depends on several factors, including how long you owned the property, whether it was your primary residence, how much the home increased in value, and whether it was ever used as a rental.
Below are some of the main tax issues Illinois homeowners should understand before selling. Every situation is different, so it is always a good idea to speak with a qualified tax professional about your specific circumstances.
Do You Have to Pay Taxes When Selling a House in Illinois?
Selling a home does not mean the full sale price is taxable.
What generally matters is whether you made a taxable gain on the property.
Your gain is usually determined by comparing the amount you receive from the sale with your adjusted basis in the home. Your basis typically begins with what you originally paid for the property and may be increased by certain qualifying improvements and other eligible costs.
Expenses related to selling the property may also affect the final calculation.
Because several factors can change your adjusted basis, the taxable gain may be quite different from simply subtracting your original purchase price from the final sale price.
Capital Gains Tax When Selling Your Primary Residence
For homeowners selling their primary residence, one of the most important tax rules is the federal home sale exclusion.
If you meet the requirements, you may be able to exclude up to $250,000 of gain from federal taxable income if you are single, or up to $500,000 if you are married and filing jointly.
In general, you must have owned the property for at least two of the five years before the sale and lived in it as your main home for at least two of those years.
There are also limitations if you used the home sale exclusion on another property within the previous two years.
It is important to remember that the exclusion applies to your profit, not the entire sale price.
For example, if you purchased a home for $300,000 and later sold it for $450,000, you would not automatically owe taxes on $450,000. The calculation would start with the gain after taking your adjusted basis and applicable selling expenses into account.
Your actual taxable gain could be lower depending on improvements, eligible costs, and other factors.
Does Illinois Have a Capital Gains Tax?
Illinois does not have a separate capital gains tax rate specifically for real estate.
Instead, taxable capital gains that are included in your federal adjusted gross income may also be included when calculating your Illinois taxable income.
Illinois currently has a flat individual income tax rate of 4.95%.
That does not mean every homeowner who sells a property automatically pays 4.95% on the sale.
If you qualify for the federal primary residence exclusion and your gain is excluded from federal income, that amount generally does not flow through to your Illinois taxable income either.
The important question is whether you have a taxable gain after any available exclusions and adjustments are applied.
Illinois Real Estate Transfer Tax
Another cost homeowners may encounter is the Illinois real estate transfer tax.
The state currently charges $0.50 for every $500 of value, or fraction of $500, when real estate ownership is transferred.
For example, a $300,000 property would generate a $300 Illinois state transfer tax.
There may be additional costs beyond the state tax.
Counties in Illinois can impose their own transfer taxes, and certain municipalities, particularly home-rule communities, may also charge additional transfer taxes.
These local taxes can vary considerably depending on where the property is located.
The seller is not automatically responsible for every transfer tax. Who pays can depend on local rules and the terms of the purchase agreement.
Your attorney or title company can explain which transfer taxes apply and how they will appear on your closing statement.
What Happens to Property Taxes When You Sell?
Property taxes in Illinois are generally paid in arrears, which means you are often paying taxes this year for the previous year.
Because of this, property taxes usually need to be prorated when a home is sold.
At closing, the seller typically gives the buyer a credit for the portion of the property taxes that applies to the time the seller owned the property.
The buyer then becomes responsible for future property tax bills after taking ownership.
The exact amount of the credit depends on the purchase contract and how the taxes are prorated.
For homeowners in areas with high property taxes, including many communities in Cook County and the Chicago suburbs, this credit can noticeably reduce the amount of money received at closing.
Make sure property tax prorations are included when estimating your expected net proceeds.
Can Home Improvements Reduce Your Taxable Gain?
Major improvements made during your ownership may increase your adjusted basis in the property.
A higher adjusted basis can reduce your taxable gain when you sell.
Examples may include:
- Adding a room or garage
- Finishing a basement
- Completing a major kitchen renovation
- Building a deck
- Installing certain permanent systems or upgrades
- Making substantial structural improvements
Routine repairs and maintenance generally do not receive the same tax treatment.
Replacing a broken faucet or repainting a bedroom, for example, is usually very different from adding a new room or completing a major renovation.
This is why it is worth keeping receipts, contractor invoices, and other records related to significant improvements made to the property.
Selling a Rental or Investment Property in Illinois
Taxes can become more complicated when selling a rental or investment property.
In addition to federal capital gains tax and Illinois income tax on taxable gains, rental property owners may also need to consider depreciation recapture.
Rental property owners are generally allowed to claim depreciation deductions during ownership. Those deductions can reduce the property’s tax basis, which may increase the taxable gain when the property is eventually sold.
Some of the gain associated with prior depreciation may also receive different federal tax treatment.
This is one area where professional tax guidance can be especially valuable.
If you are planning to sell a rental property in Illinois, consider speaking with a CPA or tax advisor before closing so you have a clearer idea of your potential tax obligation.
What About an Inherited House in Illinois?
Inherited properties can follow different tax rules than homes you purchased yourself.
The tax basis of an inherited property is often determined differently from the original owner’s purchase price.
As a result, the amount of capital gain you may have when selling an inherited home can depend on the property’s value at the time it was inherited and what happens afterward.
The situation can become more complicated when there are multiple heirs, the property is held for a long period of time, or the home is rented before being sold.
If you inherited a home and are considering selling, you can learn more in our guide to selling an inherited property in Chicago.
Records to Keep Before Selling Your Illinois Home
Good documentation can make the tax side of your home sale much easier.
Before selling, try to gather records such as:
- Your original purchase closing statement
- Documentation showing what you paid for the home
- Receipts and invoices for major improvements
- Records of depreciation if the property was ever rented
- Documentation of selling expenses
- Your final closing statement
- Form 1099-S, if one is issued
Having these records available can help you and your tax professional calculate your gain more accurately.
Talk to a Tax Professional Before You Sell
There is no single tax answer that applies to every Illinois homeowner.
Your tax situation may depend on how long you owned the property, whether it was your main residence, how much the property appreciated, your filing status, previous rental use, depreciation, and how you originally acquired the home.
Before making a major financial decision based on expected tax consequences, consider speaking with a CPA, tax attorney, or another qualified tax professional.
They can review your individual situation and help you understand what you may owe before the sale takes place.
Selling Your Illinois House for Cash
Selling your home to a cash buyer does not automatically change the taxes that apply to the transaction.
Whether you sell through a real estate agent or directly to a cash home buyer, your tax treatment is generally based on your gain, ownership history, property use, and other financial factors.
What can change is the selling process.
When you sell directly to Big Door Home Buyers, you may be able to sell your Illinois property in its current condition without making repairs, avoid the traditional listing process, choose a closing date that works with your schedule, and avoid delays related to buyer mortgage financing.
If you are considering selling and want to compare your options, Big Door Home Buyers can provide a no-obligation cash offer for your property. You can review the numbers and decide whether a direct sale makes sense for your situation.
Frequently Asked Questions
It depends on whether you have a taxable gain. Homeowners who meet the federal ownership and residency requirements may qualify to exclude up to $250,000 of gain if filing individually or up to $500,000 for certain married couples filing jointly. If your gain is fully covered by the exclusion, you may owe little or no federal capital gains tax on the sale.
Because Illinois property taxes are generally paid in arrears, sellers typically provide buyers with a credit at closing for the portion of taxes tied to the seller’s ownership period. The exact amount depends on the purchase agreement and the method used to prorate the taxes.
Usually not. Whether the buyer uses cash or mortgage financing does not by itself determine your tax liability. Taxes are generally based on factors such as your gain, how long you owned the property, how the property was used, and whether you qualify for any exclusions. A cash sale may simplify the transaction, but it does not automatically eliminate taxes that would otherwise apply.