07 Mar Property Transfer Taxes and Recording Fees: What Do I Owe?
Property transactions can be confusing, especially when it comes to how much you owe once all expenses are considered. Some of the more confusing costs incurred during real estate transactions are property transfer taxes and recording fees. Both may be imposed when the title of the property is transferred, and the sale has closed. Here we look at home transfer and recording taxes to help you understand what you owe.
What is the Illinois Transfer Tax Rate?
In Illinois, the transfer tax rate is $0.50 for every $500 of the transfer price. For example, if you sell your home for $350,000, that would cost $350. Depending on where you live, you could also face an additional $0.25 cents for every $500 that some counties impose. Additionally, in some cases, the local municipality might add their own taxes. If the property is inherited or a gift, the federal government might also apply estate/gift taxes.
Who Pays Illinois Transfer Taxes?
In most cases, the seller pays the transfer taxes although this cost may be negotiated between the buyer and seller. In a buyers’ market where properties are easier to come by, the tradition of the seller paying tends to stand, whereas in a sellers’ market where properties are limited can sometimes allow the seller to negotiate with the buyer so they pay the transfer taxes instead.
When are Transfer Taxes Paid?
The transfer taxes are paid at the time of closing or transfer of the property. If the seller is paying, the taxes are taken from their proceeds. If the buyer is paying, the amount of the taxes is included in their closing costs.
What is the Purpose of Real Estate Transfer Taxes?
Real estate transfer taxes provide funding to the government entity receiving the taxes to help cover the costs of local improvements such as parks, public transit, infrastructure, or conservation of landmarks. However, in some districts, funding can also go to schools or to help build low-income, affordable housing.
When Do Transfer Tax Exemptions Apply?
The following scenarios qualify for possible transfer tax exemptions:
- There is no money being exchanged for the transfer
- The deed is being filed to divide real estate that is owned in common
- The deed relates to a previously recorded deed with no money being exchanged
- Tax deed relates to unpaid property taxes
- The purchase is a principal residence authorized by the Home Ownership Made Easy Act
- The deed is related to a transfer made before January 1, 1968
An Illinois real estate attorney can advise you when you qualify for a transfer tax exemption.
What are Recording Fees?
Recording fees are separate from transfer taxes. Recording fees tend to be a small flat rate paid on top of your transfer taxes in order to record a document, such as a deed or a mortgage, with the county recorder so it becomes public record for anyone to view.
Are Transfer Taxes Deductible?
As with any taxes related to the sale of your personal home, you cannot use your transfer taxes or recording fees as a deductible expense when filing your income tax. However, if the property is a rental home or investment property, transfer taxes can be claimed as an expense. The seller can also use any transfer taxes they pay to offset capital gains earned from the sale.
Although transfer taxes and recording fees don’t typically cost a fortune, they do impact the total costs you face when you close. Understanding all the taxes and fees involved in your home purchase or sale will help ensure you have the available funds.
For more information on real estate transactions, speak to our Illinois real estate attorneys.
Contact Mages & Price LLC Today
Mages & Price LLC serves homeowners and investors across the Chicagoland area. Whether you are a home seller or buyer, we can help protect your investment and make your closing process a great experience.