Investing in Illinois pitfalls?

Question

I have a colleague at work who owns 4 rental properties, I know at least 2 of them are located in Illinois. Illinois being the glamorous, tax happy state that it is...I have some questions. Well one mainly. What is the deal with selling a property in Illinois and being taxed on the sale if you don't reinvest in Illinois? Kind of like they have their own 1031 type of exchange going on.

I'm a buy and hold guy, but if I bought and thought this is a bad deal...what does the exit fee look like?

I don't have any financial information on the deal yet, just looking to the future and gaining knowledge for now. I appreciate any feedback, thank you.

Michael King · Answer

Good question @Soh Tanaka and I should check my resources. It came from people I work with that live in Illinois. About 3 or 4 people have mentioned it at different bases my company runs in Illinois.

Am I misinformed? I have not seen written information about this. Perhaps it was a speculative or future tax that was being floated by the media?

Kirk R. · Answer

IL is BROKE & if you're a LANDLORD you are defacto EVIL & trying to steal your victimized tenants 1st born! lol (a little)

Big problem for IL is past politicians gave GREAT retirements to everyone.  NOW current politicians are trying to figure out how to pay the piper.  Which may entail your investment property.

IL jjust legalized Marijuana & sports betting needing ne tax revenue. IL running out of illegal things to make legal. & $15 min wage might be ok in Chicago but where I'm at $15 most likely gonna break somethings.

John Warren · Answer

@Michael King I have never heard of this, and I am very active as both an agent and an investor here in Illinois. Some municipalities do have an extra transfer stamp tax which can be frustrating when people sell, but that has nothing to do with whether or not you are taking money out of the state.

Dave Foster · Answer

@Michael King, right now PA Is the only state that flat out does not recognize 1031 at the state level.  More and more states are considering a clawback provision like California's (Thanks CA).  I think MA, OR, and MT also have clawbacks of some sort,  IL could indeed be considering a move like that.  But even then the 1031 would be allowed.

Soh Tanaka · Answer

I've done what you described and didn't see any special tax. It was a 1031 exchange.

Joseph Konney · Answer

@Michael King - Buyers and/or sellers may be liable for City/County/State property transfer taxes when they buy/sell property based on the sales price. No issues with 1031 exchanges here in IL.

Only ~5% of all cities in IL have a transfer tax (still need to look at County/State). This list is about 2 years old, but you can get an idea:https://www.illinoisrealtors.org/wp-content/uploads/2018/01/TransferTax.pdf@Kirk R.  - Let's not forget about the great 6 Casino, sports betting, and video gambling expansion in IL.

Michael King · Answer

@Soh Tanaka When did you do this? And you sold an Illinois property then took your money to another state? Were you an out of state investor when you bought and sold the property?

I wonder if it's simply a speculative tax to be introduced, or one that applies to residents only who decide to kick IL to the curb and leave? I appreciate your comments.

Soh Tanaka · Answer

Where did you get the information that IL will tax you if you don't invest your sales proceeds to another property in IL?

Investing in Illinois pitfalls?

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