1031 Exchange in Illinois: Transfer Stamps, Chicago Rates and the 4.95% Tax

Three layers of transfer stamps, and a deferred exchange pays all of them

Illinois taxes the privilege of transferring title at $0.50 for each $500 of value stated on the PTAX-203 declaration under 35 ILCS 200/31-10, excluding any mortgage the buyer takes the property subject to. Counties may add $0.25 per $500, and by long custom the seller buys both the state and county stamps at the recorder's office.

Home-rule municipalities add a third layer. Chicago's real property transfer tax is $3.75 per $500 of transfer price paid by the buyer plus a $1.50 per $500 supplemental tax for the Chicago Transit Authority paid by the seller, $5.25 per $500 in total under the City's ordinance.

Section 31-45(k) exempts deeds 'when there is an actual exchange of real estate', but only for the swapped parcels and never for the money difference. A deferred exchange through a qualified intermediary is a sale for cash to an unrelated buyer, so state, county and city stamps are owed exactly as in an ordinary sale, and the PTAX-203 must be filed even where an exemption applies.

PTAX-203, PTAX-203-A and MyDec: the declaration that prices the stamps

Form PTAX-203, the Illinois Real Estate Transfer Declaration, is completed by both buyer and seller and filed in the county where the property sits, and the value it states is the base for the state and county stamps. Non-residential property selling for more than $1 million also needs the supplemental PTAX-203-A, and counties in the MyDec program let the parties prepare the declaration online before closing.

Nothing on the declaration asks whether the seller is exchanging, and the recorder's stamps are identical either way. The exchange paperwork lives elsewhere: the assignment of the sale contract to the intermediary, the exchange agreement, and federal Form 8824 filed with the return for the year the relinquished property closes.

The flat 4.95% rate treats a rental gain like wages, and the exchange keeps it off the IL-1040

Illinois base income begins with federal adjusted gross income on line 1 of Form IL-1040 and applies a single 4.95% rate, so a capital gain from a rental is taxed no differently from salary and there is no long-term discount. Gain that section 1031 keeps out of federal AGI never enters the Illinois return, and none of the Schedule M additions reach deferred exchange gain.

Illinois has no rule following that deferred gain into another state. A Naperville investor who exchanges into a DST holding Florida property and sells years later is taxed by Illinois only if still an Illinois resident at that time, and only because residents pay on all their income, not because of the original exchange.

Trusts and estates pay the same 4.95% on gain they retain, and trusts also owe the replacement tax described next.

The 1.5% replacement tax catches LLCs, partnerships and trusts that sell without exchanging

Illinois' Personal Property Replacement Tax is levied on the entity, not its owners: partnerships, S corporations and trusts pay 1.5% of net income, corporations pay 2.5%, and the owners receive no credit for it against their own 4.95%. The Department of Revenue confirmed in a general information letter that a partnership selling its farmland owed replacement tax on the gain, even though a neighbor holding through a single-member LLC reported a similar gain personally and paid none.

An exchange helps here because the entity's federal gain is deferred and the replacement tax follows federal taxable income. Where boot is recognized, the entity pays 1.5% on that slice and the members pay 4.95% on the same dollars through their own returns.

Structure decisions belong before the listing goes live: an entity that will not complete an exchange sometimes distributes the real estate to its owners first, a step that has to be weighed against the held-for-investment requirement and needs an Illinois CPA and attorney in the room.

No withholding at the closing table, but pass-through withholding for out-of-state members

Illinois has no statute requiring a buyer or title company to withhold income tax from a nonresident seller of real estate, so a Wisconsin or Indiana owner selling in Rockford closes without any state withholding form. The Illinois withholding aimed at nonresidents sits at the entity level: under Publication 129, a partnership, S corporation or trust that has not elected the pass-through entity tax must make pass-through withholding payments for a nonresident member who has not filed Form IL-1000-E.

An exchange completed inside the entity produces no recognized Illinois income to withhold on; a partially taxable exchange creates a withholding obligation on the recognized share allocated to nonresident members.

One-third assessment statewide, and Cook County's own classification and calendar

Outside Cook County, Illinois values property at 33 1/3% of fair cash value under 35 ILCS 200/9-145, and a sale does not by itself trigger a reassessment; assessors work in general assessment cycles and the state equalizes to sales. Cook County, as a county over 200,000 that classifies property by ordinance under section 9-150, assesses residential and commercial property at different percentages and reassesses each of its three districts on a rotating three-year cycle set out in section 9-220.

Buyers price the next reassessment into their offers, and sellers of Cook County commercial property often have an appeal pending at closing. Which party keeps a refund on that appeal belongs in the contract, because the exchange does not alter property tax prorations.