Airbnb in Illinois: Statewide Hotel Tax and the Local Short-Term Rental Rules

Running a short-term rental like Airbnb in Illinois means navigating two tax layers: a statewide hotel operators' tax and whatever local rules apply where your property sits. Unlike many states, Illinois has no statewide short-term rental license, but that does not mean you can ignore state and local requirements. This guide walks you through what you actually owe, where the rules come from, and how to avoid the mistakes that cost operators money.

What Illinois Calls Short-Term Rentals: Hotel Tax Starts at the State Level

Illinois treats short-term rentals (STRs) as transient lodging under the Hotel Operators' Occupation Tax. If you rent a residential unit for fewer than 30 consecutive days, it counts. The statewide tax rate is 6 percent of 94 percent of your rental receipts. That works out to an effective rate of roughly 5.64 percent, though the actual calculation is 6 percent multiplied by 94 percent of what you charge guests.

This is not optional. Any property rented for short periods in Illinois is subject to this tax. You do not get a separate state license for STRs, but you do owe the tax regardless of where in Illinois your property is located.

The Booking Platform Change: Tax Collection as of July 1, 2026

Starting July 1, 2026, Illinois shifted who collects and remits the state hotel tax. If you list on a major hosting platform like Airbnb, Vrbo, or other booking sites, and that platform had $100,000 or more in Illinois rental receipts in the prior 12 months, the platform itself now collects and remits the statewide hotel tax to the Illinois Department of Revenue (IDOR). Local hotel taxes administered by IDOR are also collected by the platform at the same time.

This change means:

• If your platform has $100k+ in Illinois revenue, you likely do not have to file a separate state hotel tax return. The platform handles it.
• If you use a smaller platform or rent directly without a major booking site, you are responsible for remitting the state tax yourself to IDOR.
• You still owe income tax on your net rental profits, separate from the hotel tax.

Check with your specific platform to confirm they are collecting the state and local hotel taxes on your behalf. If they are not, you must file and pay the tax directly with IDOR.

Local Rules: Chicago, Evanston, Oak Park, and Beyond

Illinois does not regulate STRs statewide, but major cities and towns have their own regimes. Compliance depends entirely on where your property is.

Chicago Shared Housing

Chicago requires registration and imposes strict rules on short-term rentals. Chicago has its own separate registration requirement and ordinances. This is detailed in our separate Chicago Shared Housing guide. If you own property in Chicago, read that guide first.

Evanston

Evanston rewrote its capped short-term rental licensing regime in February 2026. If your property is in Evanston, contact the City of Evanston to get the current license requirements. Regulations changed recently enough that any older guidance may be out of date.

Oak Park

Oak Park requires a short-term rental license. You must obtain this license from the village before operating any STR. License terms, fees, and restrictions apply. Contact Oak Park's Village Hall or Planning Department for the licensing application and current rules.

Galena, Jo Daviess County, and Starved Rock Area

Galena and the surrounding Jo Daviess County area, as well as communities near Starved Rock State Park, have short-term rental regulations in place. These rules vary by municipality and have not been standardized across the region. Before operating an STR in any of these communities, verify the specific local rules with the city or county clerk.

Everywhere Else in Illinois

If your property is outside the municipalities listed above, there may still be local rules. Many smaller Illinois cities and villages are adopting their own STR ordinances. Always check with your city or village clerk before listing a property. Do not assume no rule exists just because a community is not listed here.

Step-by-Step: How to Set Up Your Illinois Short-Term Rental

Step 1: Verify Local Rules for Your Property Address

Do this first, before you list anything. Call or email the city or village clerk in the jurisdiction where your property sits. Ask specifically whether short-term rentals are allowed, whether a local license or permit is required, and what the fees and restrictions are. Get the answer in writing or note the date and name of the person who told you.

If your property is in an unincorporated county area, contact the county planning department or assessor. If the answer is unclear, ask to speak with the planning or zoning department.

Step 2: Obtain Any Required Local Permits or Licenses

If your municipality requires a local STR license or permit (like Oak Park does), apply for it and pay the required fee. This is usually a municipal process, not a state process. Keep your approval letter or license number. You will likely need this to prove compliance if anyone disputes your rental activity.

Step 3: Register with Illinois Department of Revenue if You Book Directly

If you use Airbnb, Vrbo, or another major platform, skip this step. The platform handles state tax collection if it met the $100,000 threshold in the prior 12 months.

If you rent the property directly (through your own website or by direct booking), or if your platform does not collect Illinois hotel tax, register with the Illinois Department of Revenue. You can register online at https://tax.illinois.gov/businesses/registration.html. This gives IDOR notice that you owe hotel tax, and you will receive instructions on how to file and pay. Registration is free.

Step 4: Set Up Your Airbnb Listing with Accurate Tax Information

When you create your Airbnb listing (or listing on any other platform), be precise about your nightly rate. The hotel tax is calculated on your gross rental income. Do not understate your income to avoid taxes; IDOR audits booking platform records. If the platform is collecting tax on your behalf, it will show in your payout. Review your first few payouts carefully to understand how much is being withheld.

Step 5: Keep Records of All Rental Income

Whether the platform collects the hotel tax or you do, save records of every booking, payout, and any fees you paid. You will need these for your federal and state income tax returns. Rental income is taxable to you personally, and you can deduct expenses (mortgage interest, property tax, utilities, repairs, cleaning, supplies, platform fees).

Step 6: File Your Personal and Business Income Tax Returns

The hotel tax is separate from income tax. Even if the platform collected the hotel tax, you must report your rental income and deductions on your personal tax return (usually Schedule E, or Schedule C if you provide substantial hotel-like services, or on your partnership or corporate return if you operate through a business entity). Illinois has a 4.95 percent flat personal income tax on net income. Consult a CPA or tax professional to ensure your return is correct.

Tax Obligations: What You Actually Owe

Hotel Operators' Occupation Tax: 6 percent of 94 percent of rental receipts (effective rate roughly 5.64 percent). If your platform collects it, you will see it withheld from your payouts. If you collect rent directly, file and pay this tax to IDOR on the filing schedule IDOR assigns when you register.

Local Hotel Tax: Many Illinois municipalities and some counties have their own local hotel tax on top of the state tax. These rates are collected by the platform (if it meets the threshold) or by you. Local rates vary. Chicago, for example, charges a 4.5 percent city hotel tax plus a 6 percent shared housing surcharge, remitted by licensed platforms. Ask your local municipality what local hotel tax rate applies to your property.

Federal Income Tax: Report your rental income to the IRS on Schedule E or Schedule C (individuals, depending on the services you provide), Form 1065 (partnership), Form 1120-S (S corporation), or Form 1120 (C corporation). You owe federal income tax on net rental income.

Illinois State Income Tax: Report net rental income on your Illinois tax return. Illinois taxes individuals at a flat 4.95 percent rate on net income; partnerships and S corporations pay the 1.5 percent replacement tax at the entity level.

Business License (if required locally): Some cities require a general business license or occupation permit in addition to an STR license. Fees are set by each city. Ask your local clerk.

Tips and Common Mistakes to Avoid

Do not ignore local rules just because Illinois has no statewide STR license. Local rules are enforceable. Fines for operating without a required local permit can range from a few hundred dollars per violation to thousands of dollars, and you may be ordered to stop renting the property.

Do not underreport your income. Booking platforms report rental income to IDOR. If you claim less income than the platform shows, an audit is likely. Penalties and interest are steep.

Do register with IDOR if you book directly. If you use your own website or take bookings without a major platform, you must register with IDOR to report the hotel tax. Failing to do so means you are operating without a tax license, which can result in fines and forced closure.

Do verify the $100k threshold for your platform. If you are unsure whether your platform collects taxes on your behalf, contact the platform's support team or check your payout statements. If the state and local hotel taxes are being withheld, the platform is collecting them. If not, you must file and pay directly.

Do keep all rental records for at least three years. IDOR can audit back three years or more if they suspect fraud or serious underreporting. Save booking confirmations, guest communications, payout statements, and receipts for any repairs or expenses you deduct.

Do work with a CPA for income tax. The federal and state income tax treatment of rental property is complex. Deductions for depreciation, repairs versus improvements, and business use of your home all have specific rules. A professional can save you far more than you pay for their services.

Expected Results and What Comes Next

If you follow these steps, you can legally operate a short-term rental in Illinois. Your property will be compliant with state and local rules, and you will not face penalties for unlicensed or untaxed rental activity.

What to expect:

• You will owe roughly 5.64 percent of your rental income to the state, plus whatever local hotel tax rate applies in your city. This is collected by your platform or you pay it directly to IDOR.
• You will owe federal and Illinois state income tax on net rental profits (gross income minus deductible expenses).
• If your property is in a city with an STR license requirement, you will pay the license fee that city sets.
• You will set aside money from each booking to cover taxes, because taxes are not automatically deducted from your income unless a platform collects them.

Disclaimer: This Is Informational, Not Legal or Tax Advice

This article is general information about Illinois short-term rental rules and taxes. It is not legal advice or tax advice. Rules change, and local ordinances vary. Before you operate a short-term rental, consult with a qualified attorney about local compliance and with a CPA or tax professional about your federal, state, and local tax obligations. Every property and operator situation is different, and professional guidance specific to your situation is essential.

For official information, contact:

• Illinois Department of Revenue (IDOR): https://tax.illinois.gov/
• Your City or Village Clerk: Ask about local STR rules and licenses.
• Your local planning or zoning department: For questions about permitted uses and zoning.