Understanding The Illinois Property Tax Credit

Don’t leave money on the table when it’s time to pay your taxes

The property tax credit is a credit on your individual income tax return. It varies by state, and in some cases by county. In Illinois, the credit is equal to 5% of Illinois Property Tax on your principal residence, and you must own the residence in order to qualify.

5 things to know about the Illinois property tax credit

You qualify for the tax credit if:

  • You own your residence
  • Your property tax billed during the tax year has been paid
  • Your principal residence during the previous year was in Illinois

Taxes paid on vacation homes, rental properties, and other homes that are not your principal residence do not qualify for Illinois Property Tax

What does the property tax credit mean when selling a home?

Sellers are liable for taxes on their home throughout a tax year, so if a house is sold halfway through the year, the seller is still responsible. The property tax credit is meant to offset that. According to the Illinois Department of Revenue: If you sell your house, you may include the prior year’s property tax you paid and the current year’s prorated tax offset against the sales price at the time of closing when figuring your property tax credit.” This means if you sold your house in 2017, you can include the 2016 tax and the 2017 prorated tax you paid at the time of closing when figuring your 2016 property tax credit, to be filed in 2018.

There are some restrictions: if the house you sold was vacant for a few months during the selling process and was not your principal residence during that time, you cannot count those months in your tax credit.

Property tax rules in Cook County

Some counties have their own laws, like Cook County, where property taxes are billed in two installments a year in arrears. Before you sell your home, your property tax bill must be current. In mid-year sales, that means the credit for an upcoming tax bill will be passed on to the buyer to cover the seller’s unpaid share of real estate taxes, which includes any tax liability accrued for the duration of the closing process. The new buyer assumes all payment responsibilities when buying the house, but since the tax installment might not be due until the next year, the seller will owe him or her money. The seller “gives” the buyer a tax credit as a deduction of proceeds to cover this cost.

Transfer taxes

One thing many people forget when selling their home is transfer taxes. According to Illinois Real Estate, when a title changes hands from one owner to another in Chicago, a transfer tax will be imposed locally, by the county and by the state of Illinois. State taxes in Illinois are $1 per $1,000, Cook County taxes are $0.50 per $1,000, and Chicago city taxes are $3 per $1,000.

Home office deductions

A home office can be deducted from your taxes in most states, but the calculation during a sale doesn’t view them separately if your office space is inside the home. The entire profit from selling the home will qualify for a home sale tax exclusion. If the office is located outside of your house, like in a garage or other building, only the home qualifies for the profit, and you will still pay taxes on the office.

The process can be confusing, but it’s important to understand because property tax and tax credits can add or lessen the seller’s costs closing costs. An experienced real estate attorney who specializes in property taxes in Illinois can demystify the process and protect your interests.

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