Chicago Real Estate Transfer Tax
My prior post about earnest money was in response to the many "hits" I’ve received on my website in response to search queries being made. Another popular search question lately has been about real estate transfer taxes. To find out what they are click here.
The state of Illinois has a transfer tax usually paid by sellers of $.50 per every $500.00 of the sales price. The Cook County transfer tax is $.25 per every $500.00 and is paid by the seller. Will County is the same as Cook County and although either party can pay it is usualy charged to the seller. For a list of transfer taxes in all counties click here. These fees are taken care of out of the seller’s proceeds at closing.
Some towns also have their own transfer taxes. Some are paid by the buyer, some by the seller and some are paid by both. The Chicago real estate transfer tax is $3.75 per every $500.00 and is paid by the buyer. I had a telephone conversation today with a buyer regarding this tax. He felt it was an exorbitant amount and wanted to know if the property sales price could be adjusted to offset this tax charged to the buyer. I answered that everything is negotiable, but this is a customary buyer fee and not all sellers will want to negotiate this normal buyer cost.
In fact, the buyer kept wondering if something could be done through the mortgage company and it took a bit of explaining to make him realize that this fee has nothing to do with the mortgage. This is not the same as "points" and is not a fee required by any kind of bank, savings and loan or mortgage broker.
He also asked me a question I wasn’t 100% sure of regarding if it was an income tax deduction. As I don’t want to mince words I am quoting this directly from the IRS: "Transfer taxes (or stamp taxes). You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. If you are the buyer and you pay them, include them in the cost basis of the property. If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale."
Transfer taxes are part of buying and selling real estate. As I mentioned, you can try to negotiate anything if you’re a buyer that has to pay this fee. But that doesn’t mean the seller is going to agree. Here’s an example I gave based on the price range we were discussing. There is a Chicago property for sale for $415,000. The buyer and seller agree to a price of $400,000. Everyone is sure the property will appraise at $400,000. However, the buyer finds out about the Chicago transfer tax that will cost an additional $3,000.00 to close. The buyer goes back to the seller and tries to convince the seller to absorb some of this cost by reducing price, say, by $1,500, thereby paying half of the transfer taxes. Most sellers will say, "My property is worth $400,000.00. This is your expense so why do I need to pay it? I have my own expenses as a seller."
In the above scenario I believe it was a sale between acquaintances without a real estate brokerage so the seller did not have a commission to pay and would hopefully work something out with the buyer. But in a case where the buyer and seller don’t know each other personally, the seller might not want to absorb this cost because, as mentioned, it is a typical buyer transfer tax for Chicago.
For a list of transfer taxes for different Chicago suburbs click here. This is an updated list and specifies the party responsible, the amount of the tax and more.
