Illinois taxes a real estate gain exactly like wages: a flat 4.95% on every dollar, with no lower rate for long-term gains and no exclusion for property held for years. Stack that on federal tax and a high-income seller can owe about $91,250 on a $300,000 gain, all of which a 1031 exchange in Illinois can defer. What an exchange cannot touch are the state, county and Chicago transfer taxes, which this page breaks out line by line.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Flat 4.95% individual income tax on the full gain |
|---|---|
| Long-term capital gains treatment | No preference or exclusion; taxed as ordinary income. Partnerships and S corporations also owe 1.5% replacement tax; C corporations pay 7% plus 2.5% replacement tax |
| Nonresident withholding at closing | None for individual sellers |
| Withholding form | None at closing; pass-through entities withhold for nonresident owners unless the owner files Form IL-1000-E |
| Transfer or conveyance tax (a 1031 does not defer it) | State $0.50 per $500 plus county $0.25 per $500 (0.15% combined); Chicago adds $5.25 per $500, split $3.75 buyer and $1.50 seller |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes, Illinois starts from federal adjusted gross income |
| Local income tax | None |
| Property tax note | Illinois effective property tax rates are among the highest in the country, especially in Cook and the collar counties |
Table of contents
- How much is capital gains tax on real estate in Illinois?
- Illinois tax on a $300,000 gain: worked example
- Does Illinois withhold tax from nonresident sellers?
- Illinois and Chicago transfer taxes
- Illinois property tax and the replacement decision
- Illinois conformity and clawback rules
- Moving into or out of Illinois
- Where Illinois 1031 exchanges happen
- Federal 1031 rules that apply in Illinois
- Common Illinois 1031 exchange mistakes
- Start your Illinois 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Illinois?
Illinois capital gains tax on real estate is simple to compute: 4.95% of the gain. The Illinois Department of Revenue has applied that single individual rate to net income since July 1, 2017. There are no brackets, no separate capital gains rate and no holding-period discount, so a property owned for 30 years is taxed at the same rate as one flipped in six months.
Depreciation recapture gets no special treatment either. Federally, unrecaptured Section 1250 gain is taxed at up to 25%; Illinois simply includes it in federal adjusted gross income and taxes it at 4.95% along with the rest of the gain. Estimate the federal recapture on your property with the depreciation recapture calculator.
How the owner is organized changes the Illinois bill:
- Individuals and trusts: 4.95%.
- Partnerships and S corporations: no entity-level income tax, but a 1.5% personal property replacement tax on Illinois net income, unless the entity elects the pass-through entity tax. Owners then pay 4.95% on their share.
- C corporations: 7% corporate income tax plus 2.5% replacement tax, 9.5% in total.
Illinois has no city or county income tax, so the rate is the same in Chicago as in Peoria. A properly structured exchange defers the 4.95%, the replacement tax and the federal tax together.
Illinois tax on a $300,000 gain: worked example
Assumptions: a long-term gain of $300,000 on an Illinois investment property owned individually, $100,000 of it unrecaptured Section 1250 depreciation, the seller filing jointly and already in the top federal bracket. Illinois has one rate, so the "top bracket" is 4.95% on every dollar.
| Line | Math | Tax |
|---|---|---|
| Unrecaptured §1250 gain (depreciation) | 25% × $100,000 | $25,000 |
| Remaining long-term gain | 20% × $200,000 | $40,000 |
| Net investment income tax | 3.8% × $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Illinois income tax | 4.95% × $300,000 (no exclusion) | $14,850 |
| Total tax a full 1031 exchange defers | $91,250 |
If the same property were held in an LLC taxed as a partnership, add 1.5% replacement tax on the gain, another $4,500, unless the entity elected the pass-through entity tax. Transfer taxes are not in this table because a 1031 does not defer them; they come out of proceeds either way. Compare a cash sale with an exchange on the capital gains vs. 1031 exchange comparison.
Does Illinois withhold tax from nonresident sellers?
No. Unlike California, New York or Georgia, Illinois has no withholding at closing when an individual sells Illinois real estate, whether the seller lives in Illinois or not. There is no exemption certificate to obtain for a 1031 exchange, and the title company wires the full net proceeds to your qualified intermediary.
Nonresidents still owe the tax. Gain on Illinois real property is allocated to Illinois, and a nonresident who sells without exchanging reports it on Form IL-1040 with Schedule NR.
The one Illinois withholding rule that touches real estate investors applies to entities. A partnership or S corporation that has not elected the pass-through entity tax must make pass-through withholding payments for nonresident partners and shareholders on their share of Illinois income. A nonresident owner can avoid that by giving the entity Form IL-1000-E, Certificate of Exemption for Pass-through Withholding, agreeing to file and pay directly. In a completed 1031 the deferred gain is not Illinois income, so the practical issue arises when there is boot or the exchange fails.
Foreign sellers face federal FIRPTA withholding regardless; see our FIRPTA guide.
Illinois and Chicago transfer taxes
Transfer taxes are paid when the deed is recorded, and a 1031 exchange does not defer or reduce them. Illinois layers up to three:
| Tax | Rate | Who pays |
|---|---|---|
| State of Illinois | $0.50 per $500 ($1.00 per $1,000) | Customarily the seller |
| County (including Cook) | $0.25 per $500 ($0.50 per $1,000) | Customarily the seller |
| City of Chicago | $3.75 per $500 ($7.50 per $1,000) | Buyer |
| Chicago CTA portion | $1.50 per $500 ($3.00 per $1,000) | Seller |
On a $1,000,000 Chicago sale, the seller typically pays about $4,500 (state $1,000, county $500, CTA $3,000). On the replacement side, a $1,000,000 purchase in Chicago costs the buyer another $7,500 in city tax. That combined $12,000 is cash you need to plan for, because paying it from exchange funds at closing is a normal closing cost but reduces what is left to reinvest.
Many home-rule suburbs, including Evanston and Oak Park, levy their own municipal transfer taxes, and some require a water or zoning certificate before the stamps are issued. Your title company will know the local stamp. Every transfer is declared on Form PTAX-203 through MyDec, and Chicago transfers also require the city's Form 7551 declaration.
Illinois property tax and the replacement decision
For an Illinois investor, property tax often matters more than income tax. Effective rates are among the highest in the country, and Cook County reassesses on a three-year cycle by region, so a replacement property bought just before its reassessment year can see a sharp jump. When you underwrite an Illinois replacement, use the tax you will pay after the next reassessment, not the seller's current bill, and budget for an appeal.
This is one reason many Illinois sellers exchange out of state. Trading a Chicago two-flat for net-leased property in Indiana or Texas can raise after-tax cash flow even at the same cap rate. Because Illinois has no clawback, the state does not follow the deferred gain.
Illinois conformity and clawback rules
Illinois computes individual income tax starting from federal adjusted gross income, so gain deferred under Section 1031 is also deferred for Illinois. Illinois does not require an annual report of deferred gain on out-of-state replacement property and has no clawback like California's FTB 3840 or Oregon's OR-24. If you remain an Illinois resident, you will pay the 4.95% on the deferred gain when you eventually sell the replacement in a taxable sale, wherever that property is. If you have moved away by then, the replacement property's state taxes it instead.
Moving into or out of Illinois
Leaving Illinois. Illinois taxes residents on all gains and nonresidents on Illinois-source gains. If you exchange a Chicago building into property in Florida or Texas and then move there, a later sale of the Florida or Texas property is generally outside Illinois tax because it is neither Illinois-source nor earned while you were a resident. That makes an exchange followed by a move one of the cleanest ways Illinois investors shed the 4.95% for good.
Staying but buying elsewhere. As a resident you still owe Illinois tax on a taxable sale of out-of-state replacement property, with a credit for tax paid to the other state.
Moving in. If you bring deferred gain from California or Oregon into Illinois, those states may still claim it when you sell. Coming from Missouri, remember that Missouri now exempts individuals' capital gains, while Illinois taxes them in full.
Where Illinois 1031 exchanges happen
- Chicago. Two-flats and small multifamily on the North and Northwest sides, mixed-use retail corridors, and downtown office owners looking to exit. City transfer tax applies to both sides of these trades.
- Suburban Cook and the collar counties. Industrial and logistics near O'Hare and along I-55 and I-80 in Will County, plus medical office and retail in DuPage and Lake counties.
- Downstate. Student housing in Champaign-Urbana, multifamily in Peoria, Springfield and Bloomington-Normal, and farmland throughout central Illinois, which often trades into more farmland.
- Metro East. Properties across the river from St. Louis, where investors frequently compare Illinois and Missouri tax treatment.
Sellers tired of Chicago management often move into Delaware statutory trusts for passive income while keeping the deferral.
Federal 1031 rules that apply in Illinois
You have 45 days after closing to identify replacement property in writing and 180 days to acquire it. A qualified intermediary must hold the proceeds; you cannot take them first. Buy at least as much as you sold and replace the debt paid off, or the difference is taxable boot. Test your list with the 45-day identification validator, estimate boot with the partial 1031 boot calculator, and read more in our 1031 exchange guides.
Common Illinois 1031 exchange mistakes
- Assuming long-term gain is taxed at a lower Illinois rate. It is not. Every dollar of gain, including depreciation, is taxed at 4.95%.
- Forgetting the Chicago buyer tax on the replacement. The $7.50 per $1,000 city tax on a Chicago purchase is a closing cost that eats into the cash you have to reinvest.
- Ignoring replacement tax in an LLC. A partnership selling without a full exchange owes 1.5% replacement tax on top of the owners' 4.95%.
- Underwriting on the current Cook County tax bill. A reassessment can raise the replacement property's tax well above what the seller paid.
- Waiting on municipal stamps. Suburban transfer stamps and water certifications can take days; build them into the closing timeline so the 45 and 180-day clocks are not squeezed.
- Selling after a move instead of before. If you are leaving Illinois and not exchanging, the gain is Illinois-source either way; plan the exchange and the move together.
Start your Illinois 1031 exchange
Your exchange must be set up before the relinquished property closes. Start your exchange and we will send your title company the exchange agreement and assignment, or book an intro call to go over the Illinois tax, transfer stamps and replacement timing on your deal. Prefer the phone? Call (631) 438-1031.
Frequently asked questions
How can I avoid capital gains tax on real estate in Illinois?
A 1031 exchange into like-kind investment property defers both the federal tax and Illinois's 4.95%. Other options include holding until death for a stepped-up basis, or exchanging and then moving out of Illinois, since Illinois does not claw back deferred gain on out-of-state replacement property.
What is the Illinois capital gains tax rate for 2026?
Illinois has no separate capital gains rate. Gains are taxed as ordinary income at the flat 4.95% individual rate, the same for short-term and long-term gains.
How much is the Chicago transfer tax?
Chicago charges $5.25 per $500 of price: $3.75 paid by the buyer and $1.50, the CTA portion, paid by the seller. State tax of $0.50 per $500 and county tax of $0.25 per $500 are added, customarily paid by the seller.
Does a 1031 exchange defer Illinois transfer tax?
No. Transfer taxes are due when the deed records on both the sale and the replacement purchase, whether or not you exchange.
Does Illinois withhold tax when a nonresident sells property?
Not for individual sellers. Partnerships and S corporations that have not elected the pass-through entity tax make withholding payments for nonresident owners unless the owner files Form IL-1000-E.
Does Illinois tax depreciation recapture differently?
No. Illinois taxes the whole gain, including depreciation recapture, at 4.95%. The different 25% rate on unrecaptured Section 1250 gain is a federal rule only.
Sources
- Illinois Department of Revenue: income tax rates
- Illinois Department of Revenue: Publication 129, pass-through entity information
- Illinois Department of Revenue: real estate transfer tax
- Illinois Administrative Code Part 120: real estate transfer tax
- City of Chicago: real property transfer tax
Related: Indiana, Wisconsin, Missouri, Iowa, and all 50 states.
This is general information about Illinois and federal rules, not tax or legal advice. Talk to your CPA or attorney about your own sale before you sign.
