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As a landlord operating in Chicago, there are several taxes you should be aware of:
• Property Tax: The property tax is an annual tax levied on the assessed value of residential and commercial real estate in Chicago. Property tax rates vary each year based on the city's budget needs. Property taxes are used to fund essential services like schools, infrastructure, and public safety. As a landlord, property taxes constitute one of your largest annual expenses and should be budgeted for accordingly.
• Transfer Tax: The Real Estate Transfer Tax is a tax on the transfer of ownership of real property. It is 0.75% of the property's sale price, split between the buyer and seller. So for a $500,000 property sale, the transfer tax would be $3,750 total or $1,875 for the buyer and $1,875 for the seller. The transfer tax applies whenever a property is sold or ownership is transferred.
• Hotel Tax: The Chicago Hotel Accommodations Tax is 6.5% on rent for furnished apartments, vacation rentals, and other short-term residential rentals of less than 30 days. The hotel tax applies in addition to the sales tax on such rentals. As a landlord, you are required to register and collect the hotel tax from tenants for any short-term or furnished rentals.
• Sales Tax: In Chicago, a 10.25% sales tax applies to residential rentals of less than 6 months as well as parking spaces, storage units, and other taxable property rentals. The sales tax is collected from tenants as part of their monthly rent payments. Landlords must register to collect and remit sales tax to the Illinois Department of Revenue.
• Income Tax: Rental income from properties in Chicago is subject to federal and state income taxes. As a landlord, you must report all taxable rental income and claim eligible deductions like property taxes, mortgage interest, repairs, and depreciation. Income taxes are paid annually based on your taxable income for the previous year.
For Chicago landlords, understanding and properly accounting for housing taxes is essential. Failure to register, collect, report, or remit required taxes can result in penalties, interest charges, and legal consequences. By staying up-to-date with housing tax requirements, landlords can avoid issues and ensure compliance.
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