When it comes to real estate, most buyers and sellers know that closing costs are part and parcel of every transaction. But breaking down those closing costs, and understanding what, precisely, they entail? That’s a different matter entirely.
For many buyers and sellers, one of the most important concepts to understand when it comes to real estate are transfer taxes.
Transfer taxes play an enormous role in essentially every single real estate transaction in our home of Chicagoland – and all around the country, for that matter. Yet despite this, many people tend to overlook this common cost until late in the process – a decision that could lead to sticker shock, right at the moment when you should be concluding your real estate transaction with confidence and peace of mind.
So, what are transfer taxes really? And how might they impact you as you prepare to buy or sell a home?
Real Estate Transfer Taxes, Defined
To put it broadly, a transfer tax is any kind of tax levied when beneficial interest in or title to a property is transferred from one party to another.
For real estate, transfer taxes can be imposed on the state, county, and municipal level, on all transference or conveyance of real property within a given area. Broadly speaking, the amount and type of transfer taxes required for a real estate transaction are set by local ordinance, and determined based on the classification and the value of the property being exchanged. There are often exemptions on transfer taxes, applicable depending on circumstances unique to the property, the area, and the parties involved.
Transfer taxes in real estate sometimes go by different names, in different parts of the country. Here in Chicagoland, for instance, you may see these taxes referred to as “transfer stamps” or “conveyance fees.” In other cases, you may hear these fees referred to as a “stamp tax,” a “deed tax,” or a “deed transfer tax,” in various parts of the country.
One other important thing to note? In different areas, there will be different standards when it comes to who pays for transfer taxes. Local custom in your real estate market will generally dictate whether transfer taxes are picked up by the buyer, the seller, or split in some capacity.
Transfer Taxes in Action: Cook County and Chicago, Illinois
As we’ve noted, the amount in transfer taxes that will need to be paid during a real estate transaction will vary from state to state, and even among counties and cities within a state.
For reference? In our home base of Chicago, Illinois, transfer taxes will usually be imposed on three levels – state, city, and county. Here’s what those numbers might look like, based on figures from the City of Chicago, Illinois REALTORs, and IllinoisRealEstate.com:
- State: $.50/$500 of price; either party is liable, but this cost is typically paid by the seller
- Cook County: $.25/$500 of home price; customarily covered by the seller
- City of Chicago: Divided into two portions: $3.75/$500 of transfer price for city portion, as well as $1.50/$400 for supplemental “CTA portion.” Typically, buyers tend to cover the $3.75/$500 and sellers pay $1.50/$500 portions, respectively.
Again, it’s important to keep in mind that these numbers may change over time. It’s also important to remember that this is a snapshot of one locality. These figures might be very different for your local area, and may even need to be treated differently based on the specifics of your real estate transaction. Consulting with a local real estate broker or attorney in your area may be the most effective way to get answers tailored to your region, and your unique property.
Looking for More Information or Insights?
Remember, transfer taxes and costs are just one small piece of the real estate puzzle here in Chicago. There are many moving parts to prepare for and important concepts to understand – and ultimately, completing your paperwork and documentation properly may be one of the most important steps you can take to make the transfer process easier in the present, while also setting yourself up for long-term financial success down the road.
In particular, a real estate attorney is a vital partner to have by your side as you seek to buy or sell in Chicagoland. From the simplest condo sale to the most complex development project, experienced real estate attorneys will be able to handle paperwork, coordinate schedules, lead contract negotiations, and so much more.
At the Gunderson Firm, our legal team can help handle all sorts of real estate legal matters, including:
- Residential Real Estate
- Commercial Real Estate
- Purchases and Sales
- Mortgage Conveyancing & Advice
- Real Estate Litigation
- Title Insurance
- Title Examinations & Disputes
- Asset Protection
- Condominium Law
- Property Development
- …and more
Have any questions? Looking to get a handle on another complex real estate concept? You know where to find us! Don’t hesitate to drop us a line by email or phone whenever you’re ready to keep the conversation going.