Illinois taxes capital gains as ordinary income at up to 4.95%. Add the federal 20% rate and the 3.8% Medicare surtax, and a seller in the top bracket is giving up close to $29 of every $100 in gain. A 1031 exchange into a Delaware Statutory Trust lets Illinois investors defer that combined bill and hand off the 3am maintenance calls for a professionally managed portfolio they don't have to run.
The Illinois tax math
Here's the tax stack on a long-held rental sold for a $1.5M gain (excludes depreciation recapture, taxed separately at up to 25%):
Hypothetical example for illustration only; individual results will vary.
| On a $1.5M gain | Tax |
|---|---|
| Federal long-term capital gains (20%) | $300,000 |
| Net investment income tax (3.8%) | $57,000 |
| Illinois income tax (4.95%) | $74,250 |
| Total if you simply sell | $431,250 |
| Tax if you 1031 into a DST | $0 deferred if the exchange qualifies |
In Illinois's top bracket, that combined rate is what you owe if you sell outright. Run a qualifying 1031 exchange into a DST instead, and the bill is zero for now. Run your Illinois numbers →
Illinois 1031 rules
Rules summarized as of 2026 — verify with your tax advisor.
Conforms to federal §1031
Illinois conforms to IRC §1031, so a qualifying exchange defers Illinois tax as well as federal tax.
Withholding at sale
Illinois may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
How gains are taxed
Taxed as ordinary income — up to 4.95%.
Baker 1031 in Illinois
Realized (acquired, held, sold) programs on Illinois assets. "Avg annual" is the average annualized net return to investors over the hold; "Equity ×" is total equity returned as a multiple of invested equity; "Hold" is the years the program was held. Figures are sponsor-reported and net to investors as of June 2026, have not been independently verified, and past performance does not indicate future results. See our performance methodology for how these are calculated.
Individual deal results vary significantly. The figures below are not representative of typical or expected results, and a single high-performing deal (such as a short-hold sale) is not indicative of the portfolio as a whole.
| Program | Sponsor | Avg annual | Equity × | Hold |
|---|---|---|---|---|
| Pointe Plaza Shopping Center — Niles | Syndicated Equities | 6.50% | 1.17x | 2.49 yr |
| Ravinia Plaza Shopping Center — Orland Park | Syndicated Equities | 9.05% | 1.31x | 3.12 yr |
| Le Meridien Hotel — Chicago | Syndicated Equities | 68.58% | 1.69x | 1 yr |
| Walgreens — Hickory Hills | Syndicated Equities | 11.85% | 1.68x | 4.63 yr |
| Volkswagen Distribution Facility — Libertyville | Syndicated Equities | 4.57% | 1.45x | 8.32 yr |
| 309 Green Street — Champaign | Syndicated Equities | 15.04% | 1.30x | 1.87 yr |
| Walgreens — Chicago | Syndicated Equities | 7.15% | 2.14x | 11.01 yr |
| Metropolitan Place Retail — Chicago | Syndicated Equities | 6.62% | 1.78x | 9 yr |
See every Illinois deal in the Data Center →
Current offerings for Illinois investors
DST sponsors based in Illinois
See how we evaluate the firms behind each offering on our DST sponsors and due diligence page.
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Illinois FAQ
What is the capital gains tax rate in Illinois?
There is no separate long-term rate in Illinois; the state taxes capital gains as ordinary income at 4.95%. Layer that onto the 20% federal rate and the 3.8% net investment income tax and a high-bracket seller can face roughly 28.8% on a real estate gain. Cook County owners should also factor in local assessment changes that may have pushed up their basis picture over a long hold.
Does Illinois recognize 1031 exchanges?
It does. Because Illinois conforms to IRC §1031, a properly structured exchange defers the Illinois tax right alongside the federal deferral.
Why use a 1031 exchange in Illinois?
Two reasons. First, it defers the tax on a large gain (up to roughly 28.8% combined) and keeps your full equity working. Second, it lets you step out of active landlording and into professionally managed real estate. Note that these are Regulation D offerings available to accredited investors only.
Disclosures
This page is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. State tax and 1031 rules summarized here are general, current as of 2026, and not tax advice — verify with your CPA and attorney. For accredited investors only. Representatives may transact business only in states where registered or exempt. Securities offered through Aurora Securities, Inc., member FINRA/SIPC; Baker 1031 Investments, LLC is independent of Aurora. Performance shown is sponsor-reported, realized programs only, net of fees, not independently verified, and not indicative of future results.
Investing in Delaware Statutory Trust (DST) interests involves substantial risk, including the possible loss of principal. DST interests are illiquid, are not publicly traded, and there is no secondary market for them, so investors may be unable to sell when they wish. Distributions are not guaranteed and may be reduced or suspended. Investments are subject to sponsor, property-specific, financing, and interest-rate risks, and returns depend on the performance of the underlying real estate. To qualify for §1031 tax deferral, DSTs must operate within the restrictions of IRS Revenue Ruling 2004-86 (the "seven deadly sins"), which limit the trust's ability to renegotiate leases, refinance, raise new capital, or make certain reinvestments. A 1031 exchange that fails to meet the identification and closing deadlines or other requirements can result in the immediate recognition of taxable gain, including boot. Prospective investors should review each offering's Private Placement Memorandum in full before investing.