Updated October 7, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. The 2025 Form IL-1040 starts from “Federal adjusted gross income from your federal Form 1040”, and a gain excluded under section 121 is not in it. For a resident, gain above the exclusion is taxed at the flat rate: “Residents: Multiply Line 11 by 4.95% (.0495)”. A nonresident or part-year resident instead enters the tax from Schedule NR, which the documents read do not compute.
Illinois tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Starts from federal adjusted gross income, which excludes a gain excluded under section 121 (the form does not mention section 121) |
| Rate on gain above the exclusion | Flat 4.95% |
| Collected at the sale | No withholding found in the documents read. The deed carries a state real estate transfer tax of 50 cents for each $500 of value |
| Source | Illinois Department of Revenue |
What the Illinois documents say
The 2025 Form IL-1040 begins with “Federal adjusted gross income from your federal Form 1040” and builds Illinois base income from it. Under the federal statute, “Gross income shall not include gain from the sale or exchange” of a principal residence that meets the ownership and use tests, so an excluded gain never enters federal adjusted gross income. The form does not mention section 121 or a separate home-sale exclusion. That is reasoning from two documents.
On the rate, the form says “Residents: Multiply Line 11 by 4.95% (.0495)”, a flat rate on a resident’s Illinois net income; nonresidents and part-year residents enter the tax from Schedule NR.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple in Illinois sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by Illinois. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000 and, computed as that excess times 4.95%, the tax at the flat rate would be $4,950, before any other Illinois adjustment.
What is collected at the sale
The documents read show no Illinois withholding or prepayment on a resident’s home sale, and none for a nonresident seller. That is a gap in what was read, not a statement that none exists.
Illinois does tax the transfer of title. 35 ILCS 200/31-10 imposes the tax “at the rate of 50¢ for each $500 of value or fraction of $500 stated in the declaration required by Section 31-25”. The section read does not say who pays it.
What changes in 2026
The documents read for Illinois announce no change for 2026 that is specific to the tax on a home sale. The forms and instructions read are for tax year 2025 or the newest page archived; check the state agency for 2026 forms when they are published.
What the documents do not say
- The form does not mention section 121, and the Illinois statute could not be archived, so conformity is reasoned from the starting point. The documents read show no sale-time withholding for any seller. The form is for tax year 2025.
Common mistakes
- Assuming a separate Illinois home-sale exclusion; the form read has none and starts from federal adjusted gross income.
- Applying the flat rate to the whole gain; the rate applies to what remains after the federal exclusion.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how Illinois taxes capital gains, Illinois retirement taxes, and home sale exclusion calculator.
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Answer againSources
- 2025 Form IL-1040, Individual Income Tax Return: https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/incometax/documents/currentyear/individual/il-1040.pdf
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
- 35 ILCS 200/31-10, Imposition of tax (Illinois General Assembly; read October 8, 2026): https://ilga.gov/Documents/legislation/ilcs/documents/003502000K31-10.htm
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.