Any real estate purchase is a major undertaking. You must organize a significant amount of paperwork throughout the transaction, including the purchase agreement, seller disclosures, home inspection report, closing disclosure, and more.
In some areas, such as Lake Forest, Illinois, you must also pay a real estate transfer tax. It's important to understand what this is and how it works, so you can take care of all your tax obligations properly.
What Is a Real Estate Transfer Tax?
A real estate transfer tax, also known as a deed transfer tax, is a fee imposed by the local jurisdiction on the transfer of property. This tax applies to the change of ownership for any property that requires a title.
The Lake Forest Property Transfer Tax
Lake Forest, Illinois, adopted a real estate transfer tax in 2006 for all properties closed on or after July 5, 2006. All property, both commercial and residential, is subject to this tax. The city of Lake Forest uses revenue from the property transfer tax to make infrastructure improvements such as bridge, road, and sewer repairs. The buyer of a property is responsible for paying this tax prior to closing.
The rate for the real estate transfer tax in Lake Forest is $4.00 per $1,000 of the full actual consideration, rounded up to the nearest $5. Thus, a property worth $250,000 would have a property transfer tax of $1,000.
How to Pay the Lake Forest Real Estate Transfer Tax
Before closing on any property in Lake Forest, Illinois, the buyer must pay the real estate transfer tax through the following steps:
- Fill out the Real Estate Transfer Tax Declaration Form. This form needs the signatures of at least one of the buyers and at least one of the sellers.
- Get a completed copy of the Illinois Real Estate Transfer Declaration (PTAX-203). The seller's attorney will usually complete this form.
- Obtain a copy of the deed for the property you're purchasing.
- Make sure the seller has obtained a Certificate of Compliance for the Home Inspection Program and a Certified Receipt of Payment of the Final Water Bill.
- Submit the tax declaration form with the tax due.
You can pay your real estate transfer tax using:
- Certified funds payable to the City of Lake Forest.
- Title Company check.
- Attorney's check.
You can mail your real estate transfer tax via FedEx or UPS to the Municipal Services Building at 800 North Field Drive, attention Crystal Edwards. You must include a prepaid label to receive your stamp via the mail. If you prefer to purchase your stamp in person, you must make arrangements to visit the office on a weekday between 8:00 a.m. and 4:30 p.m.
Transactions That Are Exempt From the Transfer Tax
Certain transactions are exempt from the property transfer tax, as defined by the City of Lake Forest Real Estate Transfer Tax Ordinance. The exception is the first $50 of the charge, which covers the cost of processing the exemption. Deeds are exempt if they:
- Were recorded before July 5, 2006.
- Relate to real property acquired by a governmental body; property or interests transferred between governmental bodies; and property by or from an organization that operates for exclusively religious, educational, or charitable purposes.
- Secure debt or another obligation.
- Confirm, correct, modify, or supplement a deed that was recorded previously.
- Are tax deeds.
- Release property secured for a debt or other obligation.
- Are deeds of partition.
- Are pursuant to consolidations, mergers, or transfers of sales of all the assets of corporations pursuant to or under plans of reorganization.
- Are made by a subsidiary corporation to its parent corporation for no consideration other than surrender or cancellation of the subsidiary's stock.
- Are issued to the holder of a mortgage pursuant to a mortgage foreclosure.
You are also exempt from the tax under the following considerations, though you will still need to file the declaration form:
- The deed is related to the purchase of a principal resident by a participant in a program authorized by the Home Ownership Made Easy Act.
- The actual consideration is less than $100.
- There is an exchange of beneficial interests or real estate. In this case, the money's worth or difference paid from one to the other is taxed.
How To File an Exemption
If one of the previous exemptions applies to you, you must file the Real Estate Transfer Tax Exemption Declaration Form stating the exemption you are applying for. You must submit the deed and declaration with the $50 minimum tax. This tax is payable by cash, credit card, or check.
Submit the declaration to The Finance Department at Municipal Services, 800 North Field Drive. You can drop this off in person or mail it via FedEx or UPS, attention Crystal Edwards. If you send your exemption by mail, you should include a return envelope or prepaid label or make arrangements to pick the stamp up in person.
Refunds of the Transfer Tax
You are eligible to receive a refund on your transfer tax up to $2,000 if you meet the following requirements:
- You sell a property in Lake Forest that served as your primary residence for at least three years prior to the sale.
- You purchase residential property in Lake Forest within one year of the sale of your previous property.
- You paid the real estate transfer tax in full and on time.
You must file the Real Estate Transfer Tax Refund Form within a year of your home purchase to qualify for your refund. Once you've completed the form, have it notarized and submit it to the Finance Department at Municipal Services at 800 North Field Drive. Your refund might take up to four weeks to be processed.
If you're buying or selling a home, the real estate transfer tax is just one of many expenses you're responsible for. A professional financial planner like Pasquesi Sheppard can help you carefully navigate all the associated costs and make sure your bank account stays healthy throughout the process.