Illinois, Cook County and Chicago Transfer Taxes in a 1031 Exchange

State and county stamps are the seller's, and the base excludes assumed debt

35 ILCS 200/31-10 taxes the privilege of transferring title, a beneficial interest in real property, or a controlling interest in a real estate entity, "at the rate of 50 cents for each $500 of value or fraction of $500 stated in the declaration." Where the deed states that the property is transferred subject to a mortgage, the outstanding balance is excluded from the base. 55 ILCS 5/5-1031 lets a county add "25 cents for each $500 of value," collected by the recorder before the deed records.

Cook County's ordinance, chapter 74, article III of the county code, states that "the primary incidence of the tax and the obligation to pay the tax are on the seller, grantor, assignor or other transferor," shifting to the transferee only where the transferor is exempt by state law. Illinois practice follows the same pattern for the state stamp, which the standard contract forms assign to the seller.

The declaration is Form PTAX-203, prepared in most counties through MyDec at MyTax Illinois, which the Department of Revenue's transfer tax page describes as the system for submitting state, county and Chicago declarations. The exempt transfers in section 31-45 are also exempt from the county tax, but the statute says most of them "shall not be exempt from filing the declaration."

Chicago splits its tax: $3.75 to the buyer, $1.50 to the seller

The city's Real Property Transfer Tax Declaration manual explains the computation on Form 7551. The net transfer price, after deducting personal property and other non-realty items, "is then divided by $500 ... and the quotient is rounded up to the next nearest whole number and multiplied by the applicable tax amount," computed separately for "(1) Buyer ($3.75) and (2) Seller ($1.50)." Only transfers after April 1, 2008 carry the seller's CTA portion.

Hypothetical: a $1,000,000 three-flat in Chicago sells inside an exchange. The seller pays $1,000 of state stamps, $500 of county stamps and $3,000 of CTA portion, $4,500 in total; the buyer pays $7,500 of city stamps. The whole transfer carries $12,000, 1.2% of the price. The seller's $4,500 is a transactional cost paid from exchange funds without creating boot, as explained on closing costs paid from exchange funds. Run your own numbers with your CPA.

Chicago adds requirements no other Illinois municipality imposes. The manual says water certifications "are required for ALL TRANSFERS," and the form asks whether a building registration certificate or zoning certificate applies. Interest runs at 12% a year from the date of conveyance and a 5% penalty attaches to late payment or filing. Build these into the closing timeline; a stalled water certification can push a closing past an exchange deadline.

The statute exempts a true swap, not a qualified intermediary exchange

35 ILCS 200/31-45(k) exempts "deeds when there is an actual exchange of real estate and trust documents when there is an actual exchange of beneficial interests, except that that money difference or money's worth paid from one to the other is not exempt from the tax." That describes two owners trading parcels directly, with stamps only on the cash that equalizes the values.

A deferred exchange through a qualified intermediary is not an actual exchange of real estate between the parties to the deed. You deed to a buyer who pays cash; the intermediary holds it; a different seller later deeds to you for cash. Each deed is a transfer for consideration in money, and each pays the state, county and, where it applies, the Chicago stamps. The county and city ordinances exempt the same transfers as section 31-45, and Chicago's manual lists its exemption letters without any reference to section 1031.

The same subsection says even exempt swap deeds "shall not be exempt from filing the declaration." If you do structure a direct two-party swap with a cash difference, both PTAX-203 declarations are filed, the cash is taxed, and the exchange still has to meet section 1031's own rules; direct swaps and the identification mechanics are on how to identify replacement property.

Entity interests, land trusts and DST purchases

Section 31-10 reaches more than deeds. It taxes the transfer of a beneficial interest in real property, which in Illinois includes the beneficial interest in a land trust, and the transfer of a controlling interest in a real estate entity, whether or not a document is recorded. Cook County and Chicago tax the same events, and Chicago's Form 7551 has a box for a "controlling interest in real estate entity," which the manual describes as commonly more than 50%.

That closes the route of selling the LLC instead of the building. It also matters for partnerships restructuring before an exchange, where a buyout can transfer a controlling interest without any deed; the section 1031 timing problems of those restructurings are on drop-and-swap 1031 strategies.

A fractional DST interest is not a controlling interest, and a trust holding property outside Illinois is outside the state's tax altogether. The replacement side of the exchange in a Chicago deed, by contrast, carries the buyer's $3.75 per $500, which comes out of the exchange account as a cost of acquiring the replacement property.

Where the stamps sit in the rest of the Illinois closing

Illinois withholds no income tax at closing on a real estate sale, so after the stamps the net proceeds move to the qualified intermediary in full. The state's flat 4.95% income tax on the gain, the replacement tax on pass-through entities and the absence of any claw-back when the replacement property is out of state are on 1031 exchange rules in Illinois.

On the settlement statement the three stamps should be listed separately, with the Chicago CTA portion on the seller's side and the city portion on the buyer's; how the intermediary reads those lines is on reading a settlement statement for a 1031 exchange. The other transfer taxes exchangers meet are collected on the closing hub.

• Seller: state $0.50 and county $0.25 per $500, plus the Chicago CTA portion of $1.50 per $500 inside the city.
• Buyer: Chicago city portion of $3.75 per $500; none outside the city unless the suburb has its own tax.
• Both: PTAX-203 and, in Chicago, Form 7551 through MyDec, plus the city's water certification.
• Exempt swap: only a direct two-party exchange of real estate, with any cash difference still taxed.