Does Illinois have a capital gains tax?
Illinois has no separate capital gains tax, but it taxes capital gains as part of net income at the flat individual rate of 4.95%, the rate in effect since July 1, 2017. A gain from selling an apartment building in Chicago, Peoria or Rockford is taxed at exactly the same percentage as a paycheck.
Because the rate is flat, the size of the gain doesn’t change the rate. A $50,000 gain and a $5,000,000 gain both pay 4.95% to Illinois. That makes the state bill easy to estimate, and it also means there is no bracket to manage by splitting a sale across tax years, which matters a lot more in states with graduated rates.
There is no exclusion or reduced rate for long-term gains, and the 2025 and 2026 legislative sessions did not change the rate. Illinois starts from federal adjusted gross income, so the gain the IRS sees is the gain Illinois taxes, apart from the depreciation adjustments covered below.
Illinois capital gains tax rate for 2026
For 2026 the Illinois Department of Revenue lists a single rate of 4.95% for individuals, with no brackets. Businesses that own property also pay the Personal Property Replacement Income Tax, which is charged at the entity level on top of any owner-level tax.
| Who sells the building | Illinois tax on the gain | Notes |
|---|---|---|
| Individual (direct ownership or single-member LLC) | 4.95% flat | No long-term rate, no brackets |
| Partnership or multi-member LLC | 1.5% replacement tax at the entity | Partners also pay 4.95% on their share |
| S corporation | 1.5% replacement tax at the entity | Shareholders also pay 4.95% on their share |
| Trust | 1.5% replacement tax | Charged at the trust level |
| C corporation | 2.5% replacement tax | Plus Illinois corporate income tax |
How Illinois tax stacks with federal capital gains tax
You pay the federal tax and the Illinois tax on the same gain, figured separately. The federal side uses preferential rates for long-term gains, while Illinois applies 4.95% to the whole amount, including the part the IRS calls recapture.
Under Revenue Procedure 2025-32, the 2026 federal long-term capital gains rates are 0% up to $98,900 of taxable income on a joint return ($49,450 single), 15% up to $613,700 ($545,500 single), and 20% above that. Depreciation you claimed on the building is taxed federally at up to 25% as unrecaptured Section 1250 gain. The 3.8% net investment income tax applies once modified AGI passes $250,000 for joint filers or $200,000 for single filers.
For a seller with a large gain, the top combined marginal rate on appreciation is 20% plus 3.8% plus 4.95%, or 28.75%. On the depreciation portion it is 25% plus 3.8% plus 4.95%, or 33.75%. Illinois is a smaller slice than in New York or California, but it applies from the first dollar.
Short-term and long-term gains in Illinois
Illinois treats short-term and long-term gains the same. A building flipped in ten months and one held for twenty years both pay 4.95% on the gain.
The holding period still matters on your federal return. A sale after one year or less is a short-term gain taxed at ordinary federal rates up to 37%, so the real benefit of holding past twelve months comes entirely from the IRS side. Residents report the sale on the federal return, and the gain flows to Form IL-1040 through federal AGI.
Do nonresidents pay Illinois capital gains tax on property?
Yes. A nonresident who sells Illinois real estate owes Illinois tax on the gain, because gain from real property is allocated to the state where the property sits. The seller reports it on Schedule NR, the nonresident and part-year resident schedule, and pays 4.95% on that Illinois portion.
Unlike New York, Georgia or California, Illinois does not require income tax withholding at the closing table on a real estate sale. Nothing comes out of your proceeds for the state at closing, so a seller who has moved to Florida or Arizona should plan to pay the tax through estimated payments or with the return. Gains from intangibles, such as stock, are generally not taxed to nonresidents, but a deed to a building in Cook County is not intangible.
If the building is held in a partnership or S corporation with members who live outside Illinois, the entity may have to withhold Illinois tax on those members’ shares of income, including the gain. Ask the entity’s preparer to plan for that before the sale closes.
Depreciation recapture in Illinois
Illinois has no separate recapture rate. Unrecaptured Section 1250 gain on the building and any Section 1245 recapture on personal property both flow into federal AGI and are taxed by Illinois at the same 4.95% as the rest of the gain.
So a building with $350,000 of accumulated depreciation adds $350,000 to Illinois income in the year of sale, costing $17,325 in state tax on that piece. The federal side is where recapture gets expensive, at up to 25% for building depreciation and ordinary rates for short-life components found in a cost segregation study. The depreciation recapture calculator estimates the federal part.
The bonus depreciation add-back and the true-up on sale
Illinois does not follow federal bonus depreciation. Each year you claim bonus depreciation federally, Illinois makes you add it back on Form IL-4562, and in later years you subtract depreciation instead, so your Illinois deductions come in more slowly than your federal ones.
This matters most for owners who ran a cost segregation study. The 2025 federal law (P.L. 119-21) made 100% bonus depreciation permanent for property acquired after January 19, 2025, so a buyer can write off carpet, appliances, site work and other short-life parts in year one. For 100% bonus property, the IL-4562 instructions allow a yearly subtraction equal to the federal depreciation you would have claimed without bonus. Older 30% to 80% bonus property uses a subtraction tied to each bonus percentage.
In the year you sell, Illinois trues everything up. The instructions say to reverse all the subtractions claimed for each asset in its final year and to subtract the bonus additions reported on prior IL-4562 forms. The net effect is that total Illinois depreciation over the life of the asset matches the federal total. Say you took $150,000 of 100% bonus on components in 2025 and have subtracted $60,000 on Illinois returns by the year of sale: the remaining $90,000 comes off your Illinois income in the sale year, which lowers the Illinois tax on that year’s gain by about $4,455.
Keep your IL-4562 forms for every year you owned the building. Without them, the true-up is hard to reconstruct, and a preparer may miss a subtraction you are owed.
Worked example: selling a $2 million apartment building in Illinois
Take a married couple living in Naperville who sell a 20-unit building in Aurora for $2,000,000 in 2026. They bought it in 2014 for $1,100,000 and have taken $350,000 of straight-line depreciation, with no bonus. Selling costs are $100,000. Their other taxable income is $650,000, so the whole gain lands in the 20% federal bracket, and they are not real estate professionals, so the 3.8% NIIT applies.
The total gain is $1,150,000. Federal tax comes to $291,200 and Illinois adds $56,925, for $348,125 in all, or about 30% of the gain. The Illinois figure is the gain times 4.95%, before the small personal exemption. If the same couple had moved to Texas before selling, Illinois would still tax the gain through Schedule NR, because the building is in Illinois.
| Line | Amount |
|---|---|
| Sale price | $2,000,000 |
| Less selling costs | $100,000 |
| Adjusted basis ($1,100,000 cost less $350,000 depreciation) | $750,000 |
| Total gain | $1,150,000 |
| Federal 25% on $350,000 of depreciation | $87,500 |
| Federal 20% on $800,000 of appreciation | $160,000 |
| Federal 3.8% NIIT on $1,150,000 | $43,700 |
| Illinois 4.95% on $1,150,000 | $56,925 |
| Total federal and Illinois tax | $348,125 |
How a 1031 exchange changes Illinois capital gains tax
A 1031 exchange defers the Illinois tax along with the federal tax, because Illinois starts from federal AGI and follows the federal deferral automatically. If the couple above buys a replacement worth $2,000,000 or more and reinvests all the net cash, the $348,125 is deferred and nothing is due for 2026.
Illinois has no clawback rule, so the replacement can be in Indiana, Tennessee or anywhere else in the country without an Illinois filing that follows the deferred gain. Cash taken out of the exchange is boot and is taxed by both governments in the year of sale. On $100,000 of boot, the Illinois share is $4,950.
Our guide to a 1031 exchange in Illinois covers the state-specific points, including the IL-4562 depreciation records an exchange carries forward, and the 1031 exchange rules page covers the 45-day and 180-day deadlines.
Other ways to lower the tax on an Illinois sale
With a flat rate, the usual bracket tricks do little for the Illinois share, so most of the planning targets the federal bill. An installment sale spreads the gain over the years you collect payments, which can keep part of it in the 15% federal bracket instead of 20%. Illinois still takes 4.95% of each year’s portion.
Moving out of Illinois before the sale does not avoid the state tax on Illinois property, as the Schedule NR rules show. Selling in a year with capital losses from other investments does help, because losses that offset the gain on the federal return also reduce Illinois income. The capital gains tax calculator can model the federal side before you meet your CPA.
Selling an Illinois apartment building to Skyline
Skyline buys apartment buildings with five or more units in Illinois, from Chicago and the collar counties to Springfield, Champaign and the Quad Cities. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you plan an exchange, we can set a closing date that gives you room to find the replacement, and we work with your intermediary on the documents.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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