Tax Effects of Buying and Selling Real Estate

Our clients often consult us to determine the tax effects of their pending real estate transactions. This article is intended to discuss some of the tax issues that may arise from a real estate sale.

Many of our clients are surprised to find that the State of Illinois, the county, and the municipality in which the property is located may levy a transaction tax on the sale of real estate. Some municipalities assess this tax on the purchaser in order to allow residence in their locale; some tax the seller; and some, such as the City of Chicago, tax both the seller and purchaser.

At the federal level, the government includes the profits on the sale of your personal residence as income to be declared on your personal income tax return. However, the IRS allows the first $250,000.00 in profit to be exempt from capital gains tax for a single person and $500,000.00 as being exempt for a married couple.  These exemptions result in most residential sales being a tax-free transaction for the seller.

Profits on the sale of commercial real estate are taxed in various ways depending on how long the real estate was owned prior to the sale, whether you are deemed to be in the business of selling real estate, the amount of depreciation you took during the ownership of the asset, and whether you will be deferring any of the gain pursuant to a 1031 exchange transaction.

You should always consult your tax advisor when you are considering a real estate sale so that the transaction may be structured in the most tax-efficient manner for you. Our attorneys are experienced in advising our clients in the sale and purchase in the sale of real estate, whether it is your personal home, investment property, or if you are in the business of buying and selling real estate. 

If you are in the process of buying or selling real estate and have questions regarding the tax impact, feel free to contact Glick and Trostin, LLC at 312-346-8258 for a complimentary consultation

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.