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What Are Real Estate Transfer Taxes?

When it comes to real estate transactions, there’s more to consider than just the purchase price. One crucial aspect that often gets overlooked is real estate transfer taxes, also referred to as a conveyance, deed stamp, or recordation.  

These taxes can add a significant amount to the overall cost of buying or selling a property. Whether you’re a motivated seller, a first-time homebuyer, or a seasoned commercial real estate investor, understanding transfer taxes is crucial for a smooth closing process.

For real estate agents, brokers, attorneys, and other industry professionals in Illinois and Wisconsin, expertise in this area can help you ensure a seamless transaction and an enjoyable experience for your clients.

An Overview of Real Estate Transfer Taxes 

Most states and some local jurisdictions tax conveyances of real property, and many buyers are surprised to learn they may have to pay at the city, county, and state levels, depending on their location. 

In Illinois, the current transfer tax rate is $0.50 per $500 of property value. For a residence worth $263,576 (the state’s average home value), the tax amount due at closing would be $395. 

In Chicago proper, both buyers and sellers must pay a transfer tax. The tax of $5.25 per $500 in property value is split between the buyer, who pays $3.75, and the seller, who pays $1.50. The seller’s tax contributes to the City’s Corporate Fund; the buyer contributes to the Chicago Transit Authority’s Real Estate Transfer Tax Fund

The Wisconsin real estate transfer fee (RETF) is imposed upon the grantor (seller) of real

estate at a rate of $3.00 per $1,000 of value. Per the state’s Legislative Fiscal Bureau, Proceeds from the real estate transfer fee are divided between the state and the county in which it

is collected, with the state receiving 80% and the county retaining 20%.

These taxes contribute to state and municipal revenue, funding essential public services like infrastructure, schools, community development, and public safety. 

However, according to Illinois REALTORS, these fees add to an already weighty tax burden for state property owners and serve as a sort of “exit tax,” taking an unfair chunk of hard-earned equity.

High tax bills can also present a difficult challenge for first-time homebuyers or hopeful homeowners on a tight budget. They also can’t be deducted on state or federal tax returns — but participants in Illinois’ Home Ownership Made Easy Program may be eligible for an exemption.

Ensuring Smooth Sailing

It’s always best to consult with a real estate attorney to clarify the specifics of your transaction. 

In some cases, the responsibility for paying real estate transfer taxes can sometimes be negotiated between the buyer and the seller. 

In competitive markets like Chicagoland and Wisconsin, a seller might agree to pay the transfer taxes to make the property more attractive to potential buyers. Conversely, in a buyer’s market, the buyer might offer to cover the transfer taxes to secure a favorable deal. 

In Wisconsin, certain transactions may be exempt from real estate transfer taxes or eligible for reduced rates. Real estate attorneys play a crucial role in ensuring compliance with transfer tax laws, properly completing and filing the required declarations and forms, and advising clients on potential exemptions or special cases.

Proper documentation and compliance are crucial when dealing with real estate transfer taxes. Both Illinois and Wisconsin require specific forms to be filed along with the payment of transfer taxes. 

Failure to comply with these requirements can result in delays in recording the deed, potential penalties, and possible title defects down the road. Industry professionals should ensure that all necessary paperwork is completed accurately and submitted in a timely manner.

For commercial investors, real estate transfer taxes can represent a significant expense, particularly in high-value transactions. It’s vital for investors to factor these taxes into their financial calculations and to negotiate terms that align with their investment strategy. In some cases, structuring the transaction in a certain way or timing the transfer can result in tax savings.

Equipping your clients with this knowledge fosters trust and transparency throughout the process. Your expertise can help savvy buyers prepare a realistic budget for closing costs and enjoy a positive outcome.

Partner With the Experts

At Landtrust Title Services, our experienced title officers have an in-depth understanding of the complexities of real estate transactions in both Illinois and Wisconsin. 

Our team is dedicated to providing comprehensive title insurance and escrow services to ensure a smooth and efficient closing process. We’ll handle transfer tax calculations and disbursements, so you can focus on what matters most — helping your clients achieve their goals.

Contact us today to learn more about our services and how we can help you navigate the real estate transfer tax landscape.

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