Transfer Taxes in Illinois

By John Trepel, ATG Law Clerk

This article is a guide to the types of transactions to which the Illinois Real Estate Transfer Tax applies, as well as the transactions exempt from the tax. There is a discussion of the rate of tax, the tax stamp purchase process, and the filing of the deed and transfer declaration for both the state and county taxes. The article then touches on transfer taxes imposed by municipalities and takes an in-depth look at the municipal taxes and requirements imposed by the City of Chicago.

Definitions

Some definitions are helpful to establish at the outset of this article. These definitions are the same for the State, county, and the City of Chicago transfer tax. 35 ILCS 200/31-5, Chicago, Illinois, Code of Ordinances Sec. 3-33-060 (O). The definitions are important to establish from the onset on this article to make it clear which properties are subject to the various state, county, or local real estate transfer taxes.

The state defines “real estate entity” as any person including, but not limited to, any partnership, corporation, limited liability company, trust, other entity, or multi-tiered entity, that exists or acts substantially for the purpose of holding directly or indirectly title to or beneficial interest in real property. 35 ILCS 200/31-5. There is a rebuttable presumption that an entity is a real estate entity if it owns, directly or indirectly, real property having a fair market value greater than 75% of the total fair market value of all the entity’s assets, determined without deduction for any mortgage, lien, or encumbrance. 35 ILCS 200/31-5.

“Beneficial Interest” includes, but is not limited to:

1) The beneficial interest in an Illinois land trust;

2) The lessee interest in a ground lease (including any interest of the lessee in the related improvements) that provides for a term of 30 or more years when all options to renew or extend are included, whether or not any portion of the term has expired; or

3) The indirect interest in real property as reflected by a controlling interest is a real estate entity. 35 ILCS 200/31-5.

“Controlling Interest” means more than 50% of the fair market value of all ownership interests of beneficial interests in a real estate entity. 35 ILCS 200/31-5.

Imposition of Tax at the State Level

Illinois imposes a tax on the privilege of transferring the following: (1) title to real estate located in Illinois; (2) a beneficial interest in real property located in Illinois; or (3) a controlling interest in a real estate entity owning property in Illinois. The rate is 50 cents for each $500 of value or fraction of $500 stated in the declaration required by Section 31-25.  35 ILCS 200/31-10. If the transfer document states that the transfer is subject to a mortgage, the mortgage balance that is outstanding at the time of the transfer is not included in the basis for computing tax. 35 ILCS 200/31-10. The tax is due if the transfer is made by one or more related transactions or involves one or more persons or entities and whether or not a document is recorded. 35 ILCS 200/31-10.

Collection of Tax

Deeds and other instruments relating to or affecting the title to real estate are recorded in the county where the real estate is situated. 765 ILCS 5/28. The recorder of the county where the property is situated collects the tax by selling revenue stamps. 35 ILCS 200/31-15.

The Department of Revenue sells revenue stamps to the recorder who then sells the stamps for the purposes prescribed. 35 ILCS 200/31-15. The recorder affixes the revenue stamps to the deed, or other taxable instrument, either before or after recording, as requested by the grantee. 35 ILCS 200/31-20. Because a seller needs to deliver a recordable deed to the buyer, the seller typically pays the state and county transfer taxes. One court, in determining which party pays the transfer tax, observed, “the court notes that the real estate transfer taxes are ‘imposed on the privilege of transferring title to real estate located in Illinois,’ 35 ILCS 200/31–10, and the only party with the privilege to transfer the title would be the grantor/seller." Fannie Mae v. Hamer, No. 12 C 50230, 2013 WL 591979, at 7 (N.D. Ill. Feb. 13, 2013).

The stamps evidence payment of the tax, and, unless exempt as provided in 35 ILCS 200/31-45, the recorder will not accept a deed, or other taxable instrument for recording unless revenue stamps in the required amount have been purchased in the required amount. 35 ILCS 200/31-20.

The filing of the transfer declaration and payment of the transfer tax is required at the time a deed transferring title to real estate is presented for recordation or within three (3) business days after the transfer is effected, whichever is earlier. 35 ILCS 200/31-25. The transfer declaration must be signed by at least one of the sellers and also signed by at least one of the buyers in a transaction or by the attorneys or agents for the sellers or buyers. 35 ILCS 200/31-25.

The transfer declaration requires the following information including, but not limited to:

(a) the value of the real property or beneficial interest in real property located in Illinois so transferred;

(b) the parcel identifying number of the property;

(c) the legal description of the property;

(d) the date of the deed, the date the transfer was effected, or the date of the trust document;

(e) the type of deed, transfer, or trust document;

(f) the address of the property;

(g) the type of improvement, if any, on the property;

(h) information as to whether the transfer is between related individuals or corporate affiliates or is a compulsory transaction;

(i) the lot size or acreage;

(j) the value of personal property sold with the real estate;

(k) the year the contract was initiated if an installment sale;

(l) any homestead exemptions, as provided in Sections 15-170, 15-172, 15-175, and 15-176 [35 ILCS 200/15-170, 35 ILCS 200/15-172, 35 ILCS 200/15-175, and 35 ILCS 200/15-176] as reflected on the most recent annual tax bill;

(m) the name, address, and telephone number of the person preparing the declaration; and

(n) whether the transfer is pursuant to compulsory sale. 35 ILCS 200/31-25.

Unless exempt by Section 31-45, a recorder will not accept for recording a deed or other taxable instrument unless it is accompanied by a declaration containing all the information requested in the declaration. 35 ILCS 200/31-25.

Any person who willfully falsifies the value of transferred real estate on the transfer declaration required by Section 31-25 (ILCS 200/31-25) or who willfully falsifies or willfully omits any other information required by Section 31-25 or who willfully and falsely claims a transaction to be exempt under Section 31-45 (35 ILCS 200/31-45) is guilty of a Class B misdemeanor. 35 ILCS 200/31-50. If the false statement concerns the identity of a grantee it is a Class C misdemeanor. 35 ILCS 200/31-50. A second or subsequent conviction of an offense is a Class A misdemeanor. 35 ILCS 200/31-50. Any person convicted of an offense is liable for the tax due in addition to any fines imposed by the court. 35 ILCS 200/31-50.

County Real Estate Transfer Tax

Just like the state, a county board may impose a tax on the privilege of transferring title to real estate. 55 ILCS 5/5-1031(a). There are two options that the Department of Revenue gives for the purchasing of Revenue Stamps. The first is the State Tax Only option, where stamps are affixed with the rate of $.50 per $500 of value. 86 Ill. Adm. Code 120.10. The second option is revenue stamps with State and county tax, where stamps are affixed at the rate of $.75 per $500 of value and coded with the county name. 86 Ill. Adm. Code 120.10. In either case, both the state and county taxes must be paid at the time a deed or other taxable instrument is presented for recording because the recorder cannot accept these documents without the revenue stamps affixed to the document as evidence of payment of the real estate transfer taxes. 35 ILCS 200/31-20, 55 ILCS 5/5-10.31(b). 

The revenue stamps should be affixed to the front of the deed or other taxable instrument by the recorder either before or after recording as requested by the grantee. 32 ILCS 200/31-20.  A county may also tax the privilege of transferring a beneficial interest in a land trust holding legal title to real estate located in that county. 55 ILCS 5/5-1031(a). If the real estate is transferred subject to a mortgage, the amount of the mortgage that is still outstanding at the time of transfer is not included in the basis of computing tax. 55 ILCS 5/5-1031(a).

The tax rate is $.25 for each $500 of value or fraction thereof stated in the declaration required by Section 31-25 of the Property Tax Code (35 ILCS 200/31-25). 55 ILCS 5/5-1031(a). The recorder collects the taxes before recording the deed or trust document subject to the tax. 55 ILCS 5/5-1031. The same exemptions apply to the county transfer taxes as to the state transfer tax. 55 ILCS 5/5-1031.

Home Rule Counties may also impose a tax on the privilege of transferring title to real estate, on the privilege of transferring a beneficial interest in real property, and on the privilege of transferring a controlling interest in a real estate entity. 55 ILCS 5/5-1031.1(a). This tax can only be imposed after the home rule county gives public notice and then submits the proposed tax referendum to a vote. 55 ILCS 5/5-1031.1(b).

Illinois State and County Exemptions

The Illinois state and county exemptions for transfer taxes are as follows:

a) Deeds representing real estate transfers made before January 1, 1968, but recorded after that date and trust documents executed before January 1, 1986, but recorded after that date. 35 ILCS 200/31-45(a).

b) Deeds to or trust documents relating to (1) property acquired by any governmental body or from any governmental bodies 35 ILCS 200/31-45(b), (2) property or interests transferred between governmental bodies 35 ILCS 200/31-45(b), (3) property acquired by or from any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious, or educational purposes 35 ILCS 200/31-45(b). However, for deed or trust documents falling within exemptions 1, 2, or 3, other than those in which the Administrator of Veterans’ Affairs of the United States is the grantee pursuant to a foreclosure proceeding, shall not be exempt from filing the declaration. 35 ILCS 200/31-45(b).

Case Note: When the Illinois Department of Revenue and several county officials brought suit against Freddie Mac, Fannie Mae, and the Federal Housing Financing Agency for payment of real estate transfer taxes, the court sided with the agencies claiming an exemption stating, “[T]he Fannie Mae statute exempts Fannie from real estate transfer taxes levied by state or local government, as has been held by the only other federal court of appeals to have addressed the issue” DeKalb County v. Fed. Hous. Fin. Agency, 741 F.3d 795, 801 (7th Cir. Ill. 2013).

See, Fannie Mae v. Hamer, which states that Federal Housing Finance Agency entities, including Fannie Mae and Freddie Mac, are exempt. The court explained, “it would be inappropriate to assume that Congress intended to permit the states to tax the Enterprises with a virtually unfettered panoply of tax options where it wrote they were to be exempt from ‘all taxation’. . . . Accordingly, the Enterprises are exempt, pursuant to the plain language of their charters, from the real estate transfer taxes.” Fannie Mae v. Hamer, No. 12 C 50230, 2013 WL 591979, at 6 (N.D. Ill. Feb. 13, 2013).

c) Deeds or trust documents that secure debt or other obligation. 35 ILCS 200/31-45(c).

d) Deeds or trust documents that, without additional consideration, confirm, correct, modify, or supplement a deed or trust document previously recorded. 35 ILCS 200/31-45 (d).

e) Deeds or trust documents in which the actual consideration is less than $100. 35 ILCS 200/31-45 (e).

f) Tax deeds. 35 ILCS 200/31-45 (f).

g) Deeds or trust documents that release property that is security for a debt or other obligation. 35 ILCS 200/31-45 (g).

h) Deeds of partition. 35 ILCS 200/31-45 (h).

i) Deeds or trust documents made pursuant to mergers, consolidations or transfers or sales of substantially all of the assets of corporations under plans of reorganization under the Federal Internal Revenue Code or Title 11 of the Federal Bankruptcy Act. 35 ILCS 200/31-45 (i).

j) Deeds or trust documents made by a subsidiary corporation to its parent corporation for no consideration other than the cancellation or surrender of the subsidiary's stock. 35 ILCS 200/31-45 (j).

k) Deeds in which there is an actual exchange of real estate and trust documents in which there is an actual exchange of beneficial interests, except that the money difference or money's worth paid from one to the other is not exempt from the tax. These deeds or trust documents, however, shall not be exempt from filing the declaration. 35 ILCS 200/31-45 (k).

l) Deeds issued to a holder of a mortgage, as defined in Section 15-103 of the Code of Civil Procedure, pursuant to a mortgage foreclosure proceeding or pursuant to a transfer in lieu of foreclosure. 35 ILCS 200/31-45 (l).

m) A deed or trust document related to the purchase of a principal residence by a participant in the program authorized by the Home Ownership Made Easy Act, except that those deeds and trust documents shall not be exempt from filing the declaration. 35 ILCS 200/31-45 (m).

Municipal Transfer Tax

In addition to state and county taxes, municipalities may impose specific requirements (such as sewer or water bill payment) as well as a transfer tax on the privilege of transferring title to real estate, transfer of beneficial interest in real property, and on the privilege of transferring a controlling interest in a real estate entity.

Chicago Transfer Tax

The City of Chicago imposes its own tax upon the privilege of transferring title to, or beneficial interest in, real property located in the city, regardless of whether the agreement or contract providing for the transfer is entered into in the city. Chicago, Illinois Code of Ordinances Sec. 3-33-030(A). The tax rate is $3.75 per $500 of the transfer price, or fraction thereof, of the real property or the beneficial interest in real property. Chicago, Illinois Code of Ordinances Sec. 3-33-030(A). The tax is due depending upon which is earlier, the delivery or recording of the deed, assignment or other instrument of transfer. Chicago, Illinois Code of Ordinances Sec. 3-33-030(B). The obligation to pay the tax is on the purchaser, grantee, assignee or other transferee; however, if the transferee is exempt from the tax solely by operation of state law, then the incidence of the tax and obligation to pay shifts to the transferor. Chicago, Illinois Code of Ordinances Sec. 3-33-030(C). It is the duty of the person liable for the tax to affix the stamps in the proper number and denomination on the face of the deed, assignment or other instrument of transfer. Chicago, Illinois Code of Ordinances Sec. 3-33-040(B).

There is an additional tax imposed by the Chicago Transit Authority (CTA) of $1.50 per $500 of the transfer price. Chicago, Illinois Code of Ordinances Sec. 3-33-040(F). The seller or transferor is responsible for the CTA portion of the tax. Chicago, Illinois Code of Ordinances Sec. 3-33-040(F). But, if the seller or transferor is exempt from the tax solely by operation of state or federal law, then the CTA portion is paid by the purchaser or transferee. Chicago, Illinois Code of Ordinances Sec. 3-33-040(F). In fact, it is unlawful for a transferee to accept a deed or other instrument of transfer if the CTA portion is owed and has not been paid. Chicago, Illinois Code of Ordinances Sec. 3-33-040(F). If the CTA portion of the tax is owed but not paid at the time it is due, then the transferor and transferee are jointly and severally liable for the tax, plus interest and penalties, and the property that is the subject of the transfer will be subject to a tax lien provided in Section 3-33-120. Chicago, Illinois Code of Ordinances Sec. 3-33-040(F).

Chicago Water, Sewer, and Zoning Requirements

In addition to a transfer tax, Chicago imposes additional requirements that must be complied with before a transfer stamp will be issued.

Water and Sewer: Tax stamps in connection with a parcel of real property located in the city may not be issued unless the comptroller issues of certificate indicating that, as of the most current billing, all water and sewer assessments relating to the parcel have been paid in full, or a waiver of certification issued pursuant to applicable rules or regulations. Chicago, Illinois Code of Ordinances Sec. 3-33-040(C).

Zoning Compliance: Tax stamps may also not be issued in connection with a parcel of residential property located in the city that is within one or more of the categories specifically laid out in 3-33-045(A) unless there is presented to the department or its agents either: (1) a valid certificate of zoning compliance issued by the zoning administrator; or (2) evidence that the requirement for a certificate of zoning compliance has been waived by virtue of the failure of the zoning administrator to act within the time periods prescribed in either subsection 3-33-045(D) or subsection 3-33-045(E) of this chapter. Chicago, Illinois Code of Ordinances Sec. 3-33-040(E).

The categories of property which require a certificate of zoning compliance prior to the issuance of tax stamps are residential property zone for, or occupied by one or more of the following:

(1) One-family dwellings;

(2) Two-family dwellings; or

(3) Multi-family dwellings containing five or fewer dwelling units, all as defined in the Chicago zoning ordinance. Chicago, Illinois Code of Ordinances Sec. 3-33-044(A).

However, a certificate of zoning compliance is not required for residential property subject to the Illinois condominium property act, for residential property located within cooperative buildings, as defined in Section 13-10-020 of this Code, or for property containing a newly constructed dwelling that is sold to the initial occupant of the dwelling. Chicago, Illinois Code of Ordinances Sec. 3-33-044(A).

Chicago Transfer Tax Exemptions

  1. Transfers of real property made prior to January 1, 1974, where the deed was recorded after that date, or assignments of beneficial interest in real property dated prior to July 19, 1985, where the assignment was delivered on or after July 19, 1985. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (A).
  2. Transfers involving real property acquired by or from any governmental body or acquired by with respect to the city portion or acquired from with respect to the CTA portion, any corporation, society, association, foundation or institution organized and operated exclusively for charitable, religious or educational purposes or acquired by any international organization not subject to local taxes under applicable law. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (B).
  3. Transfers in which the deed, assignment or other instrument of transfer secures debt or other obligations. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (C).
  4. Transfers in which the deed, assignment or other instrument of transfer, without additional consideration, confirms, corrects, modifies, or supplements a deed, assignment or other instrument of transfer previously recorded or delivered. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (D).
  5. Transfers in which the transfer price is less than $500.00. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (E).
  6. Transfers in which the deed is a tax deed. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (F).
  7. Transfers in which the deed, assignment or other instrument of transfer releases property which secures debt or other obligations. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (G).
  8. Transfers in which the deed is a deed of partition; provided, however, that if a party receives a share greater than its undivided interest in the real property, then such party shall be liable for tax computed upon any consideration paid for the excess. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (H).
  9. Transfers between a subsidiary corporation and its parent or between subsidiary corporations of a common parent either pursuant to a plan of merger or consolidation or pursuant to an agreement providing for the sale of substantially all of the seller's assets. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (I).
  10. Transfers from a subsidiary corporation to its parent for no consideration other than the cancellation or surrender of the subsidiary's stock and transfers from a parent corporation to its subsidiary for no consideration other than the issuance or delivery to the parent of the subsidiary's stock. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (J).
  11. Transfers made pursuant to a confirmed plan of reorganization as provided under Section 1146(c) of Chapter 11 of the United States Bankruptcy Code of 1978, as amended. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (K).
  12. Transfers of title to, or beneficial interest in, real property used primarily for commercial or industrial purposes located in an enterprise zone, as defined in Chapter 16-12 of this code. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (L).
  13. Transfers in which the deed or other instrument of transfer is issued to the mortgagee or secured creditor pursuant to a mortgage or security interest foreclosure proceeding or sale or pursuant to a transfer in lieu of foreclosure. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (M).
  14. Transfers in which the transferee is a participant in the Illinois Home Ownership Made Easy Program (HOME), authorized under the Illinois Home Ownership Made Easy Act, 310 ILCS 55/1. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (N).
  15. Transfers in which the transferee is a person 65 years of age or older who demonstrates, by proof acceptable to the Chicago Tax Assistance Center:

a.that the transferee will occupy the property as his or her principal dwelling place for at least one year following the transfer; and

b.that the transfer price is $250,000.00 or less, provided that this exemption applies only to the CTA portion of the tax;

NOTE: This exemption shall be administered in the form of a refund for which the transferee desiring the refund shall apply to the Chicago Tax Assistance Center within three years following the transfer. Chicago, Illinois Code of Ordinances Sec. 3-33-060 (O).

  • Note: Other home rule municipalities may also have a transfer tax requirement. See ATG Real Estate Transfer Ordinances for information on Cook and collar county municipalities.

Illustrations

Sale Transaction: An illustration can show the impact that a municipal real estate transfer tax can have. If a home had a $500,000 purchase price, the seller would have to pay $750 total in taxes before calculating the municipality transfer tax liability, $500 for the state ($.50 per $500) and $250 for the county ($.25 per $500).

But, if this property were in the City of Chicago, there is an additional $3,750 ($3.75 per $500) of transfer tax liability. Additionally in this transaction, the seller would have to pay $1,500 ($1.50 per $500) in transfer taxes due to their liability of the CTA portion of the city tax.     

Assumption of Mortgage Transaction: Party A pledges real estate as security for a $250,000 mortgage loan. Party A pays back $100,000 on the principal and then transfers title to Party B. Party B pays $150,000 to Party A and assumes responsibility for completing the remaining mortgage payments. The transfer declaration should report $300,000 ($150,000 outstanding on the mortgage and $150,000 purchase price). But, the $150,000 outstanding on the balance of the mortgage should be taken as a deduction resulting in a net consideration of $150,000 for computing the transfer tax.

With the $150,000 net consideration, state and county taxes would be $375 ($.50 per $500 for state and $.25 per $500 for county). If this were a property in Chicago, the municipal tax liability would be $1,875 to the buyer ($3.75 per $500) and $750 to the seller ($1.50 per $500). Additionally, the water, sewer, and zoning requirements would have to be complied with before the issuance of the stamps.

Conclusion

A real estate practitioner must be aware of state and county transfer tax liability based on the value of the property for every transfer unless an exemption specifically applies. Municipalities may also create real estate transfer taxes and requirements, which should also be taken into consideration when entering a real estate transaction. Municipality transfer tax rates should be carefully examined, as their tax rates can be significantly higher than rates imposed by the state or county. 

Posted on: Mon, 07/20/2015 - 10:07am