Taxes on Selling a House in Illinois: What to Expect

With average annual property tax sets that range from $5,000 to $9,000, Illinois was recently named the “least tax-friendly state” in the country. All combined, taxes in the Prairie State can represent about 13% of a median family’s income. But how does this translate for taxes on selling a house in Illinois?

This post is designed to clarify the tax aspects of selling your home in Illinois, helping you better understand what to expect. We’ll also share tips from an expert Illinois real estate agent.

“There are taxes that some people don’t think about when they’re deciding to sell their home,” says Diana Matichyn, a top real estate agent in Cook County, who works with nearly 75% more single-family homes than the average agent in her market. “They think that commission is the only expense that they have, but it actually is a lot more than that.”

Editor’s note: This post is for educational purposes and is not intended to be construed as financial or tax advice. HomeLight encourages you to reach out to an advisor.

Capital gains tax

Matichyn says it is important to plan ahead and know what to expect before you list your home for sale. She cautions that there’s one big tax that can catch homeowners by surprise if they’ve only lived in a home for a short time.

“Capital gains tax — especially if you lived in the home for two years or less — can be a hefty tax that you may have to pay,” Matichyn says.

If you profit from the sale of a home in Illinois, then you may owe some capital gains tax unless you qualify for an exclusion, which we’ll address in the table below.

Capital gains are the profits made when you sell an appreciable asset, such as your home. For example, if you buy a home for $170,000 and sell it for $370,000, you have a capital gain of $200,000.

Capital gains are taxed by both the state and federal governments, but Illinois does not distinguish between short-term and long-term capital gains. It taxes all capital gains as ordinary income. In this case, without a qualifying exemption, you’ll pay the state’s flat income tax rate of 4.95%, regardless of your income level.

However, on the federal level, gains can be considered either short-term or long-term.

Short-term capital gains are when you sell an asset within a year of purchasing it. Those gains are included in your ordinary income and taxed according to your tax bracket.
Long-term capital gains are any profits made from the sale of an asset after at least a full year of ownership. For a home sale, those gains are taxed according to the following table.

2024 capital gains tax brackets (long-term capital gains)

The table below illustrates the long-term capital gains rates for tax year 2024. Single filers can qualify for the 0% long-term capital gains rate with a taxable income of $47,025 or less. Married couples filing jointly can qualify with an income of $94,050 or less.

Tax rate
Single filers
Married filing jointly
Head of household

20%
$518,901 or more
$583,751 or more
$551,351 or more

15%
$47,026 to $518,900
$94,051 to $583,750
$63,001 to $551,350

0%
$0 to $47,025
$0 to $94,050
$0 to $63,000

Source: IRS.gov (Capital gains table)

Capital gains tax exclusion

Both the IRS and the state of Illinois provide a capital gains tax break for home sellers who meet certain conditions.

“If you lived in the home for at least two out of the last five years before the sale, you may qualify for exclusion up to $250,000 of the gain for a single taxpayer and $500,000 for a married couple who are filing jointly,” Matichyn explains.

This is a statutory exclusion on profits from the sale of your family home. As Matichyn notes, the maximum amount of capital gain that can be excluded is $250,000 for single filers or $500,000 for a married couple filing jointly. To qualify for the full exclusion amount, according to IRS Publication 523, the following criteria must be met:

The home being sold is your primary residence.
You’ve owned the home for at least two years in the five-year period before selling it.
You’ve lived in the home for at least two years within the five-year period before selling it. The years you’ve lived in it don’t need to be consecutive. Certain exceptions to this rule are made for those who are disabled or those in the military, Foreign Service, intelligence community, or Peace Corps.
You didn’t acquire the home through a like-kind exchange (also known as a section 1031 exchange) within the past five years. This is basically when you swap one investment property for another.
You haven’t claimed the exclusion on another home in the past two years.
You aren’t subject to expatriate tax (a government fee paid by those who renounce their citizenship or take up residency in another country).