If you are selling your Kane County home, you will need to know how transfer taxes work. While they aren’t complicated, they differ based on location and can impact your bottom line.
This guide will explain how transfer taxes work, who pays for them, what they are, and any exemptions you may qualify for.
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What are transfer taxes?
Real estate transfer taxes are charged by state or local governments when property ownership is transferred from one individual to another.
According to the Federal Trade Commission, these taxes are due when the title to a property, essentially the document that confirms your legal ownership, is officially passed to a new owner.
The amount owed in transfer taxes can vary widely based on the property’s location. Different states, counties, and cities usually have their own rates and regulations for these taxes. Transfer taxes primarily serve as a revenue source for local and state governments, funding various public services and infrastructure projects.
Who pays for transfer taxes?
In Illinois and Kane County, the seller is typically responsible for paying transfer taxes, which are calculated based on the property’s sale price.
However, it’s not uncommon for negotiations between the buyer and seller to lead to a different arrangement, where the buyer might agree to take on this cost. There is no standard in Illinois establishing which party is responsible for the tax, only that it gets paid.
As such, it’s important for both parties involved in the transaction to review their contract carefully and consult with a real estate professional to clearly understand who is responsible for these taxes before finalizing the sale.
What are the types of transfer taxes?
Transfer taxes typically vary according to local regulations but can generally be categorized into three types — state, city, and county, depending on the state. Here’s a brief overview of how it works in Kane County.
State transfer taxes
For property transfers in Illinois, a documentary transfer tax of $0.50 per $500.00 of the home’s sales price is applied.
County transfer taxes
According to the state’s Department of Revenue, “Counties may impose a tax of 25 cents per $500 of value on real estate transactions. Home rule municipalities may also impose an additional real estate transfer tax.”
In Kane County, the county transfer tax rate is $0.50 per $1,000 of the home’s sales price.
Other transfer fees
Beyond transfer taxes, there may be additional fees to consider, such as those from a homeowner’s association or local neighborhood organization. Since these can vary widely based on location, consulting a professional is advisable.
If you’re selling your home without a realtor, seeking professional advice can clarify some of the nuances of the process and provide a better understanding of what to expect regarding the pros and cons of selling a house without a realtor.
Are transfer taxes deductible?
Transfer taxes are, unfortunately, not eligible for tax deduction.However, you might be able to lower the amount you pay in capital gains taxes.
Capital gains, defined as the profit obtained from the sale of your home or the financial gain from selling your property, are subject to federal taxation just like profits from the sale of other assets.
Sellers have the option to treat paid transfer taxes as selling costs, allowing them to subtract these from their home’s closing sale price, according to the IRS. By doing so, they can lower the capital gains taxes owed on any profit earned.
Kane County transfer tax exemptions
Some sellers might find themselves eligible for exemptions from transfer taxes, depending on their specific circumstances and location.
These exemptions can significantly impact the overall cost of transferring property ownership. Here’s a brief overview of situations where transfer taxes may not apply:
- Property transfers involving governmental bodies or certain non-profit organizations.
- Transactions securing debt or other obligations.
- Amendments to previously recorded deeds without additional consideration.
- Sales priced under $500.
- Transactions where the deed is a tax deed.
- Releases of property that secure debt.
- Deeds of partition.
- Transactions between parent companies and their subsidiaries or between subsidiaries of the same parent company due to business restructuring.
- Transfers from a subsidiary to its parent in exchange for stock cancellation or surrender.
- Properties involved in a bankruptcy plan confirmation.
- Properties in enterprise zones used for commercial or industrial purposes.
- Transfers to lenders resulting from mortgage foreclosures or in lieu of foreclosure.
- Properties under the H.O.M.E. Program.
- Transfers between legally recognized partners following court orders from separation or divorce proceedings.
Estimating Kane County transfer taxes
Ready to sell your Kane County home? You should consider using HomeLight’s Net Proceeds Calculator. This tool accounts will help you estimate closing costs such as transfer taxes, agent fees, and any updates you’ve made to the property, giving you a good idea of your potential profit.
Additionally, working with a top real estate agent can offer valuable insights tailored to your needs. HomeLight can connect you with a professional today, giving you confidence and peace of mind to sell your home easily.
Editor’s note: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Kane County area tax services or attorneys should not be considered endorsements.
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