What is a transfer tax on commercial real estate in Chicago?

An issue that may arise in a commercial real estate negotiation in Chicago has to do with a payment that one of the parties will be forced to make, but the payment does not go to either the buyer or the seller. Illinois imposes a transfer tax on the transfer of title to real estate. The county also collects a transfer tax when real property is sold or transferred.

Transfer taxes are usually collected at real estate closings by title company representatives. The payment is delivered to the Recorder of Deeds in the county in which the commercial real estate is located. 

The state transfer tax is 50 cents for every $500 of consideration paid in connection with sales and purchase of real property. A commercial real estate sale in which the price paid by the purchaser is $1 million, for instance, would result in a transfer tax obligation of $1,000 to the state.

Obviously, the higher the value of the real property being sold, the greater the tax obligation owed to the state. Although the tax is a seller’s obligation, the negotiations that precede drafting a purchase agreement might include an effort by the seller to pass the payment of the tax over to the purchaser. This might occur in a high-priced real estate market where the transfer tax payable to the state could be significant.

The subject of transfer taxes and other expenses paid by buyers and sellers at real estate closings is beyond the scope of this posting to cover in detail. Some counties may also charge a transfer tax, so it is best to consult with a Chicago attorney for legal advice and guidance about who should be responsible for its payment in commercial real estate transactions.

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