chicagorealtor-12462.kxcdn.com...FAILED FINAL EXAMS:Re-take exams are permitted for those with an...

MAKINGSENSE OF

RESIDENTIALREAL ESTATE

TAXES

Making Sense Of Residential Real Estate Taxes

2©2018 REALTORS® Real Estate School * ALL RIGHTS RESERVED

MAKING SENSE OF RESIDENTIAL REAL ESTATE

Course Description:While real estate tax computations are not within the duties of the real estate agent, it is the broker to whom the client often turns for clarification of taxes and tax prorations. Therefore, it is a benefit to the broker and to the client that the broker understands these processes.

The course educates the real estate agent in how real estate taxes are calculated. Learning how taxes are prorated for closings enables the agent to assist a seller in estimating closing costs when preparing a seller net sheet. The course educates agents so that they can explain how taxes are levied, prorated and protested. The information on how to protest real estate taxes is useful for the agent in assisting sellers and buyers in determining if they should protest their taxes.

The Course Objectives: • Where tax monies are used in the community.

• The process by which real estate taxes are levied.

• What the Property Index Number (PIN) means.

• How to read and understand a tax bill.

• Understanding that real estate taxes are an automatic lien on a property which, if unpaid, can force a sale of the property.

• How property taxes are calculated.

• How to prorate real estate taxes for closings and assisting the seller to calculate a net sheet.



The Course Objectives Continued: • What exemptions and deductions can be applied to the tax bill.

• How to protest real estate taxes.

• The types of property sales that are a result of unpaid real estate taxes.

• Special Assessments

• The process by which the state of Illinois levies taxes.

The Timed Course Outline:

A. Where tax monies are used in the community. 15 mins

B. How the Property Index Number (PIN) is determined 25 mins

C. Reading a tax bill 25 mins

D. How tax liens attach to the property and are prorated at closing 20 mins

E. The Consequences of unpaid property taxes 20 mins

F. Calculating the tax bill 20 mins

G. Tax Reduction, Incentives and Exemptions 25 mins

H. Disputing property taxes 10 mins

I. Special Assessments 10 mins

J. The outlined tax assessment process 10 mins

Total Time 180 mins



E-Book Self-Study ProgramIf you are taking this course via E-book self-study please review the following prior to beginning your program.

MAXIMUM TIME FRAME FOR COURSE COMPLETION: The time frame to complete this course, including the final exam is 3 months. No ex-tensions are permitted. Failure to complete your course in the allotted time will result in dismissal from the course and forfeiture of your course tuition.

REVIEW QUESTIONS: At the end of most Sections, Chapters, or Lessons are review questions. It is highly recommended that you answer these ques-tions to judge how well you understand the material. The completion of these reviews in no way guarantees a passing score on the exam.

INSTRUCTOR ASSISTANCE: At any time if you have questions about the material contact our office at (312) 803-4900 and we will put you in touch with an instructor.

FINAL EXAMINATIONS (LOCAL): Students must take the 25 question final exam per every 3 hours of instruction in order to receive credit for this course with minimum passing score of 70%. Once you have completed your reading assignments and feel confident with the material call (312) 803-4900 to schedule your exam appointment.

FINAL EXAMINATIONS (OUT OF TOWN): If you are out of town and need to test remotely visit http://chicagorealtor.com/realtors-real-estate-school/course-forms/ Follow the directions on this form to schedule your out of area testing.

COURSE COMPLETION: Once you have successfully completed your final exam you will receive a transcript within 7-10 working days after the date of the final exam.



FAILED FINAL EXAMS: Re-take exams are permitted for those with an unsuccessful passing score (below a 70%). The re-take exam must be TAKEN no later than 2 weeks following the original exam date. Unsuccessful re-take scores will require students to re-enroll in the course at full tuition price.

TRANSFERRING FROM A SELF-STUDY COURSE TO THE SAME CLASSROOM COURSE: Students may transfer from a self-study format to a classroom format of the same course. Students wishing to make this transfer will be required to pay the difference between the self-study format and the classroom format and bring their own text books. New text books will not be issued. Call (312) 803-4900 or email [email protected] and someone will assist you.

CE COMPLIANCE AND REPORTING: IDFPR requires submission of successful CE course completion by the 15th of the following month after passing the exam. The school will submit this information to IDFPR for you. This information will be input into their system where you can check on your CE completion for each CE cycle. https://www.idfpr.com/applications/CE_Lookup/Default.aspx? CredPrefix=473. Please note; it can take up to 45 days for this information to be input into the system at IDFPR.

If you have any questions please call (312) 803-4900 or email [email protected]

Thank you.



MAKING SENSE OF RESIDENTIAL REAL ESTATE

TAXATION

Municipalities, townships and counties in Illinois are responsible for levying real estate taxes on properties. The state and federal governments are not involved. Counties are most often the taxing authority that assesses and collects property taxes. However, municipalities, park districts, school districts, water districts, forest preserves, etc. may also levy taxes on properties within their jurisdictions.

Taxes are most commonly used to pay for roads, schools, hospitals, police, fire departments and similar community services. Usually, properties that provide services to the community are exempt from paying property taxes, i.e. schools, government properties, charitable, not-for-profit, religious organizations, etc.

For tax purposes, each property is identified through the Property Index Number (PIN), sometimes called the “Property Identification Number”. This is a numerical code for the description of a piece of land as it has been defined for real estate taxation purposes. The 14-digit number has a base of 10 digits with a 4-digit code at the end to identify if properties are single family detached houses or condominiums or rentals. The first 2 numbers identify the township. The next 2 numbers identify the section in the township. The next 3 numbers designate the block number. The next 3 numbers designate the parcel number within that block. Lastly, the remaining 4 numbers are 0000 for non-condo and non-rental, but will have numbers other than 0000 to identify the actual condominium within a parcel.



00-00-000-000-0000 Township-Section-Block-Lot-Unit

For example: PIN is 11-07-073-054-0000 TT-SS-BBB-LLL-NNNN

• TT is the TOWNSHIP number

• SS is the SECTION number

• BBB is the BLOCK number

• LLL is the LOT or PARCEL number

• NNNN is the UNIT number. If the property is a condominium or a rental there would be numbers other than zeros. Zeros for this portion of the PIN show that the property is not a condo or rental.

The first 2-digit number identifies the township on a county map. (11 in the example PIN)



The next 2-digit number identifies the section within the township. (07 in the example PIN)

Next is a 3-digit number identifying the block within the section. (073 in the example PIN)

The numbers within the lot lines give the lot’s dimensions.Remember, if the property in question is a condo or leasehold, the last 4-digit number will identify the specific unit in a condo or the leasehold. If this section contains zeros (as in the sample) the property is not a condo or leasehold.



Understanding a Tax Bill

Here is a Cook County tax bill. Note that this is a 1st installment bill and consequently the estimated tax is 55% of the previous year’s tax bill. In other counties it can be 50% of the previous year’s tax bill or whatever the assessor’s office deems appropriate for that tax year.

• The amount is listed for this 1st installment payment and is the amount due if the bill is paid on time by the due date. The county must issue the tax bill a minimum of 30 days prior to the payment due date. (In Cook County that is March 1 of the year following the tax year being billed. In most other counties in Illinois, but not all, the 1st installment is due June 1 of the year following the tax year being billed.)

• The PIN is stated, identifying the exact parcel being taxed. (Note this hypothetical PIN does not have 0000 at the end, so would be for a condominium.)

• If paid late, after the due date, there is a 1.5% penalty for each month that the bill remains unpaid.



Here is the 2nd installment for the same property. The 2nd installment is usually due on September 1 of the year following the tax year being billed. (The tax bill must be issued 30 days before payment is due. If the 2nd installment tax bill arrives late then the due date will be later as well.) Again, if the bill is paid late there will be an additional 1.5% penalty for each month that the tax bill payment is late.

• In the 2nd installment the charges are itemized so that the taxpayer knows exactly what is being billed.

• The assessed value is noted. In this case it is $17, 423 or 10% of the property value of $174, 423. (Note that this is a Cook County tax bill for residential property. In Cook County residential property is assessed at 10% of the property’s fair market value while commercial and industrial properties are assessed at 25% of fair market value. In other counties throughout Illinois, residential property is assessed at 33 1/3% of fair market value.)

• There is an equalization factor of 2.8056 to bring this property’s payment up to other counties percentage. (Discussed later.)

• The equalized assessed value of this property is $48,882. It is on this total that the tax rate is multiplied: 8.537% for this tax year.

• The homeowner’s exemption (and any other exemption for which the homeowner qualifies) is then deducted to determine the actual tax.

• The “Code” at the top of the bill stands for the combination of taxing districts that are collecting taxes from this property.

• The “Property Classification” indicates the type of property being taxed, i.e. Residential, commercial, industrial, etc. Residential starts with “2”.

• The “%” is the percentage contributed to the total taxes.

• The “Tax Rate” is the total for all local governments collecting on this property.



Websites to get further information:www.cookcountytreasurer.comwww.cookcountyassessor.comwww.cookcountyclerk.com

A video on understanding your tax bill:http://www.cookcountytreasurer.com/understandingyourtaxbill.aspx



Following is an example of a Lake County tax bill. While the formatting from different counties varies, the information and process is the same.



Types Of Taxes

There are two types of taxes imposed on real estate:

• General real estate/property taxes or ad valorem taxes;

• Special assessments.

Both property taxes and special assessments become liens on the property as soon as they are levied and do not need to be recorded to be enforceable. These taxes do not attach to the owner of the property, but rather to the property itself. Therefore, whoever owns the property at the time the taxes are due is the one responsible for their payment.

Property taxes and special assessments are:

• Statutory: Created by law or statute;

• Involuntary: Made mandatory by statute, not by the choice of the owner;

• Specific: Only attach to one, specific property and not to any others owned by the same owner.

A delinquent property tax payer may own several properties, but only be delinquent on one of those properties. Only the lien on the property with the delinquent tax payment will be enforced for non-payment. The remaining properties, whose tax bills have been paid, will not be involved.

In Illinois: Property tax liens attach to the property as of January 1 of that tax year. However, the payment of those taxes is not due until the following year (paid in arrears). Property taxes are issued by local government taxing districts, not by the state. Only real property is assessed in Illinois, not personal property. The largest share of the tax payment goes to school funding.



During the year the tax is levied, the property is assigned the value it had as of January 1 of that year. During the second year when the tax for the previous year is actually paid, the tax bills are calculated and mailed to the owners. The tax money received is then distributed to the local tax districts. Non-farmland in Illinois is assessed at 33 1/3% of its market value (except in Cook and some other counties.)

Because the lien is a financial claim against the property, the ownership of a property with unpaid taxes may be more difficult to transfer as the new owner would be taking the property subject to an existing lien and therefore be responsible for its payment. It is important that the seller/owner give a credit to the buyer at closing so that when the unpaid taxes come due in the following year, the buyer/new owner has the money to pay those taxes actually owed by the exiting seller.

Property Taxes Attached And Prorated

Property taxes automatically become a lien or an encumbrance on the property as soon as they are levied on January 1 of each year. Some states pay taxes in advance and some pay taxes in arrears. Illinois pays taxes in arrears, meaning that property taxes for one year are not due and payable until the following year. There are 2 installments for payment, June 1 and September 1, except in Cook County and a few others, where the installment dates are March 1 and September 1. The first installment is based on the previous year’s tax bill and the second installment shows adjustments for increases or decreases in the amount of taxes being assessed for a particular property.

Because the real estate taxes attach to the property, not to the owner of the property, the taxes must be prorated at closing. Because the property taxes in Illinois are paid in arrears, the new owner will receive and be responsible for payment of the tax bill for the period during which the seller owned the property and would have been responsible for payment. Consequently, at closing, the seller will credit the buyer



for the tax amount due for the period of time during which the seller held ownership. The taxes are prorated for the number of days that the seller had owned the property but had not yet paid the taxes.

The amount of the credit would be calculated using either a statutory/banker’s year or a calendar year.

A statutory or banker’s year: • 360 days per year; • 12 months; • All months have 30 days.

A calendar year: • Exact number of days in the year, 365 or 366 in leap year; • Uses the exact number of days in each month.

FOR EXAMPLE: The closing is on June 6, 2016. The first installment of 2015 taxes would have been paid by June 1, 2016, but remaining unpaid and owed by the seller are the second installment taxes for 2015 and the taxes for 2016 through June 6, 2016, the day of closing. Assume the total taxes for 2015 were $3,000. There is a remaining balance of $1,500 for 2015 as well as the prorated taxes for 2016 through the day of closing. (Day of closing belongs to the seller.)

Using a banker’s year to calculate the amount owed for 2016:$3,000 ÷ 360 days = $8.333 per day

30 days x 5 months (January, February, March, April, May) = 150 days

150 days + 6 days in June = 106 days$8.333 x 106 days = $1,299.948 or $1,300$1,500 for 2015 + $1,300 for 2016 = $2,800 debit to seller, credit to the buyer at closing.



NOW YOU: Use a banker’s year to calculate the amount of tax the seller owes for the previous year and for the current year that will be a debit to the seller and a credit to the buyer.

Closing is on June 12. The tax bill for the previous year was $5,000 and only the 1st installment of those taxes was paid by the seller. The seller owes the buyer a credit for the previous tax year and for the amount of time he has owned the property in this current tax year.

In some states, the property taxes are prepaid or paid in advance. Using the same property taxes, if the seller had pre-paid or paid the taxes in advance, at closing the buyer would be required to credit the seller for the amount of time in 2016 that the seller had already paid for but would not be the owner of the property. The seller would receive a credit for 23 days in June (June 7, 2016 through June 30, 2016) and for 6 full months of July, August, September, October, November and December of 2016.

Determining the Tax Rate

To determine the tax rate for a particular tax year, the taxing jurisdiction looks at the amount of money it will require to meet the financial responsibilities of the coming year. Once this is determined, the amount of revenue that the jurisdiction will receive from the government (fees collected, parking revenue, etc.) is calculated and subtracted from the total amount of money needed. The amount not covered by those revenue sources becomes the amount that the jurisdiction needs to receive from property taxes. This is then divided among the properties paying taxes and levied on them proportionately to their value. The combined value of the tax-paying properties is determined and the amount of money needed is divided by the value amount of tax-paying properties to determine the tax rate.



FOR EXAMPLE: $1,000,000 Budget Shortfall ÷ $50,000,000 value of tax-paying properties = .02 or 2%

Value of Taxable Properties = .02 or 2% Tax Rate

Using this tax rate, a property valued at $500,000 and assessed at 33 1/3% of its Fair Market Value (FMV) or Market Value (MV) would have a calculated tax bill of $2,500.

$500,000 FMV X 33 1/3% Assessment Rate $166,666.66 Assessed Value X 2% Tax Rate $3,333.33 Tax for this property

Fair market value (FMV) is the estimated value of the property if it were sold in an arm’s length transaction. After FMV is established, it is multiplied by the assessment rate the assessor has determined and the assessed value for that property is set for that tax year. The assessed value determines what the ultimate tax bill will be. Deductions, if any, are taken from the assessed value. This adjusted assessed value is then multiplied by the tax rate to determine the actual amount of tax owed on that property.

How is Fair Market Value Determined? (Non-Farmland)

The assessor reviews recent sale prices of comparable properties and determines the current FMV. In Cook County every 3rd year is a reassessment year. In Illinois (outside of Cook County), every 4th year is a reassessment year, meaning that every 4 years the assessor reviews sales to adjust the current FMV up or down. When property



is assessed for FMV, only the real property, the land and structures or improvements, is considered. Personal property (i.e. furniture, cars) is not included in the evaluation. The land value (site value) and the improvement value (building value) may be separated out to determine the FMV.

In determining the FMV for a property, the assessor will use the same methods as an appraiser uses and will apply the appropriate “appraisal” approach for each property according to its usage classification. Classifications include residential, commercial, and industrial. Depending on the county, the tax rate may vary according to each property’s classification of use. Generally, throughout the State of Illinois, non-farmland is assessed at 33 1/3% of FMV, except in Cook County and a few others. For example, in Cook County residential property is assessed at 10% of FMV and commercial is assessed at 25% of FMV.

FROM THE COOK COUNTY ASSESSOR’S WEBSITE: CALCULATING AN ESTIMATED RESIDENTIAL PROPERTY TAX BILL

The Cook County Assessor is responsible for determining the first part of the equation used by the Cook County Treasurer to calculate your property taxes. The Assessor does not set tax rates or levies or decide the dollar amount of your tax bill. He determines only a “Market Value” (MV) for your property and, for taxation, uses 10% of its value as the “Assessed Valuation” (AV).

The State Equalization Factor/Multiplier (“State Equalizer”) is then applied to the AV, and this creates the Equalized Assessed Value (EAV) for the property. After any qualified



property tax exemptions are deducted from the EAV, your local tax rate and levies are applied to compute the dollar amount of your property taxes. Please remember: each Tax Year’s property taxes are billed and due the following year. For instance, 2015 taxes are billed and due in 2016… Property tax bills are mailed twice a year. Your first installment is due at the beginning of March. By law, the First-Installment Property Tax Bill is exactly 55% percent of the previous year’s total tax amount. The Second-Installment Property Tax Bill is mailed and due in late summer; it reflects new tax rates, levies, assessments and any dollars saved by exemptions for which you have qualified and applied.

For more information on calculating the tax bill in Cook County: http://www.cookcountyassessor.com/Resources/Residential-Tax-Bill.aspx

Residential properties are usually valued using the Sales Comparison Approach, which compares the values of comparable properties in the neighborhood to determine the FMV of the subject property. Properties for which there might not be any comparable properties, i.e. churches, schools or any type of special use property, are usually valued by using the Cost Approach, which determines the current value of the property by the cost of replacing or reconstructing the property in the current marketplace. The Income Approach to value is used for properties whose value is based on the income that they produce, i.e. shopping centers, office buildings, large rental properties.

While it would be logical to think that a decline in market value would lead to a decline in the property’s tax bill, this might not be the case. The taxing jurisdiction’s financial needs and budget shortfalls are what will determine the rate at which a property is taxed and that will determine if a property’s tax bill raises or lowers, even if the assessed value remains the same. When the number of taxable



properties falls due to foreclosures, abandoned properties, more non-revenue producing properties and the like, the amount of tax revenue available to the jurisdiction also falls and needs to be made up by the remaining tax-paying properties. There may be a limit as to how much property taxes can increase in any given tax year.

Calculating the Tax Bill

Once the tax rates have been set, the County Clerk analyzes the rates for a particular county. Since different parts of a county may be under different taxing districts, the County Clerk divides the county into various “tax codes” so that all properties will have the same aggregate rate being paid to the varying parties receiving tax money. This rate combines the rates established by the county, the township, school district, municipality or city, sanitation, fire and any other services for that area. In Illinois, the rate is in dollars per $100 of the equalized assessed value or as a percentage, i.e. $5.00 per $100 is the same as 5%.

The Equalization Factor or Multiplier

Illinois statutes require that non-agricultural land be assessed at 33 1/3% of its FMV (except for Cook County and a few others) and that property taxation be done uniformly and equally throughout the state. Assessment levels must be uniform to ensure equal distribution of tax responsibilities as well as the distribution of funds to various recipients of the tax dollars, i.e. education, roads, etc.

This leads to the need for an equalization factor for districts deemed to be under assessed or over assessed. To balance the tax burden so that each property pays its appropriate share, the state applies an equalization factor to the assessed value of the properties within such a district so that the tax burden is “equalized” among the properties.



FOR EXAMPLE: Within the same jurisdiction, 2 homes each have a market value of $100,000 but the assessor estimated the fair market values differently. Property #1’s value is estimated at $70,000 and Property #2’s value is estimated at $100,000. If the level of assessment is 33 1/3% then Property #1 would have been assessed at $30,000 (30% of market value) while Property #2 would have been assessed at $33,333 (33 1/3% of market value). Therefore, Property #2 would be paying a higher tax bill even though it actually had the same market value as Property #1. This situation could take place between taxing jurisdictions, townships and counties.

The inequality would need to be rectified to be fair. In order to equalize the taxation, the assessor would then apply an equalization factor to the property that is being under assessed in order to level out the taxes. The equalization factor seeks to balance tax responsibilities. With a tax rate of $5.00 per $100 of value or 5%, the property tax would be calculated accordingly:

Property Under- Assessed, Property Properly Assessed Requiring Equalization Factor $100,000 Property Value $100,000 Property Value X 33 1/3% Assessed Rate X 30% Assessed Rate $33,300 Assessed Value $30,000 Assessed Value

$33,300 Assessed Value $30,000 Assessed Value X 5% Tax Rate X 111% Equalization Factor $1,665 Property Taxes $33,300 Equalized Assessed Value

$33,000 Equalized Assessed Value X 5% Tax Rate $1,665 Property Taxes



Multipliers or equalization factors are affected by:

• Increases and decreases:

o In sales prices;

o Made by assessors in the property assessments.

• Methods used by the Illinois Department of Revenue in their studies.

• The number of arm’s length transactions that have taken place.

The Illinois Department of Revenue does an “assessment/sales ratio study” by comparing 3 years of sales and assessments to determine the ratio of sales price to assessed value. This is to determine if the assessments for an area average out to be 33 1/3% of market value. If the study shows that the assessments are higher or lower than 33 1/3% of market value, an equalization factor is used to either raise or lower the assessed value to the required 33 1/3% of market value. If local assessors and/or the County Assessors or Board of Review have not reassessed to the required level, the State Department of Revenue will issue required factors (equalization factors) to the County Clerk who must then apply the multipliers before calculating the tax bills.

The Illinois Department of Revenue is required to provide an equalization factor for each county to equalize the level of assessment to 33 1/3% for all counties. This is the mean or average of the medians for each county for the last 3 years immediately preceding the year being assessed.

When property taxes increase or decrease they most likely increase or decrease for all of the properties within that jurisdiction. The assessor, seeking to have each property share proportionately and appropriately in the tax burden, will increase or decrease every property’s equalized assessed value at the same rate in order to maintain uniformity.



When the equalized assessed value of a property remains unchanged, the property may still pay more in taxes because the tax rate may change or increase based on what the district needs in revenue as determined by the budget shortfall.

When equalization factors are applied to a district, the Department of Revenue publishes this information in local newspapers and on websites.

The equalization factor can also work in reverse when an area is considered over-assessed. In this case, the equalization factor will reduce the property’s assessed value before the tax rate is applied.

Tax Reduction, Incentives and Exemptions

Illinois allows reductions, incentives and exemptions on a PRIMARY RESIDENCE, which are applied to the property’s assessed value or equalized assessed value prior to multiplication by the tax rate.

• Homeowner’s exemption (Homestead exemption):

o Assessed value or equalized assessed value is reduced thereby reducing the property tax;

o Age of the owner is not a factor;

o Reduction amount varies by the county.

• Senior citizen homestead exemption:

o All owners must be 65 years or older;

o If the property is co-owned by spouses or siblings only 1 needs to be 65 or older;

o Must own the property for at least 12 consecutive months before applying;



o As of 2012 must apply every year in Cook County. Other counties vary.

o Senior citizen receiving this exemption automatically qualify for the Homeowner’s Exemption and do not need to apply for the Homeowner’s Exemption separately.

o As of 2012 must apply every year in Cook County. Other counties vary.

o Senior citizen receiving this exemption automatically qualify for the Homeowner’s Exemption and do not need to apply for the Homeowner’s Exemption separately.

• Senior citizen assessment freeze homestead exemption (Senior freeze):

o Must be 65 years or older (all owners must qualify)

o Total household income of $55,000 or less;

o Must have been the occupant owners of the property as of January 1 of the year for which the application is filed;

o Freezes the equalized assessed value in the year that the senior qualifies for the exemption and will not increase as long as the senior remains eligible for the exemption;

o If reassessments decrease the tax valuation, the property taxes could decrease;

o Maintains the equalized assessed value at the base year’s amount;

o The exemption amount is determined each year based on the property’s current equalized assessed value minus the value at which it was frozen; (Frozen at $100,000 equalized assessed value and now EAV is $120,000 – $100,000 so $20,000 is the exemption for that year.)



o The tax bill may increase if tax rates are increased or if improvements are added to the property causing its fair market value to increase;

o Requires yearly verification of the limited income.

• Veteran with disabilities exemption:

o May be available to a veteran of the United States armed forces who is entitled to and is receiving compensation form the US Department of Veteran Affairs for a service-related disability;

o Annual reduction in equalized assessed value;

o Equalized assessed value must be less than $250,000;

o Can remain for use by un-remarried surviving spouse;

o Cannot be used in a single tax year in combination with the Veterans with Disabilities Exemption for Specially Adapted Housing.

• Veterans with Disabilities Exemption for Specially-Adapted Housing:

o May be up to $100,000 reduction on the assessed value for certain types of housing owned and used exclusively by a veteran with a disability in which federal funds have been used for the purchase or construction of specially adapted housing.

o Beginning with the 2015 tax year, the exemption also applies to housing that is specifically constructed or adapted to suit a qualifying veteran’s disability if the housing or adaptations are donated by a charitable organization, and the veteran has been approved to receive funds or the purchase or construction of Specially Adapted Housing through the U.S. Department of Veterans Affairs.



• Returning Veteran’s Homestead Exemption:

o $5,000 reduction in the EAV of a veteran’s principal residence upon returning from active duty in an armed conflict involving the armed forces of the United States;

o Good for two consecutive tax years:

• The tax year that the veteran returns from active duty in an armed conflict involving the armed forces of the United States and the following year.

o The veteran must own and occupy the property as his or her principal residence on January 1 of each assessment year;

o A veteran who acquires a principal residence after January 1 of the year he or she returns home is eligible for the RVHE on the principal residence owned and occupied on January 1 of the following tax year.

• Disabled exemption:

o Retired from gainful employment because of a disability;

o Must show proof of disability;

o Must be renewed each year.

• Homestead Improvement Exemption:

o Up to fair cash value of $75,000 (or $25,000 in assessed value, which is 33 1/3% of fair cash value) that was added to a homestead property by:

• A new improvement to it;

• Rebuilding after a catastrophic event.

o Continues for 4 years from the date of improvement or rebuilding completion or occupancy.



• Natural Disaster Homestead Exemption:

o For a rebuilt residential structure following a natural disaster.

o Amount of the exemption is the reduction in EAV of the residence in the first taxable year for which the taxpayer applies for an exemption minus the EAV of the residence for the taxable year prior to the taxable year in which the natural disaster occurred.

o Continues at the same amount until the taxable year in which the property is sold or transferred.

• Senior Citizens Real Estate Tax Deferral Program:

o 65 or older to defer all or part of the real estate taxes and special assessments (up to a maximum of $5,000 per year) on their principal residences.

o Household income limit up to $55,000;

o Works like a loan from the state with annual interest of 6%;

o A lien is filed on the property in order to ensure repayment of the deferral.

o The state pays the property taxes and then recovers the money, plus 6 percent annual interest, when the property is sold or transferred.

o The deferral must be repaid within one year of the taxpayer’s death or 90 days after the property ceases to qualify for this program.

o The maximum amount that can be deferred, including interest and lien fees, is 80% of the taxpayer’s equity interest in the property.



• Cook County Only — Long-time Occupant Homestead Exemption (LOHE)

o For counties implementing the Alternative General Homestead Exemption (AGHE).

o For residential property occupied as a primary residence for a continuous period by a qualified taxpayer with a total household income of $100,000 or less.

o The property must be occupied for 10 continuous years or 5 continuous years if the person receives assistance to acquire the property as part of a government or non-profit housing program.

o Limits EAV increases to a specific annual percentage increase that is based on the total household income of $100,000 or less.

o A total household income of $75,000 or less is limited to a 7% annual percentage increase in EAV or a total household income of over $75,000 to $100,000 is limited to a 10% annual percentage increase in EAV.

o The minimum limit is the same amount calculated for the General Homestead Exemption with no maximum limit amount for the exemption.

o Properties cannot receive both the Long-time Occupant Homestead Exemption and the General Homestead Exemption or Senior Citizens Assessment Freeze Homestead Exemption.



As an incentive to businesses, a jurisdiction may offer reductions of or exemptions on property taxes to entice the businesses to locate within certain zones in the community. “TIF” (Tax Increment Financing) designated areas are a means by which public financing can be used to bring improvements or redevelopment to blighted areas or areas in decline. A TIF district is usually for a limited amount of time and the bonds issued to secure the funding would need to be repaid at the end of that period, generally 20 years or so.

Working Out Taxes With Exemptions:

1. Find the property’s fair market value.

2. Multiply the FMV by the assessment rate to find the assessed value of the property.

3. Multiply assessed value by the equalization factor (if there is one).

4. Find the equalized assessed value.

5. Subtract exemptions

6. Apply the tax rate. (In Cook County the exemptions are taken before the tax rate is applied.)

7. Determine the property taxes.



FOR EXAMPLE: The property’s fair market value is $100,000 and it is assessed at a rate of 33 1/3%, so no equalization factor is necessary. There is a

$6,000 homeowner’s exemption and a $5,000 senior exemption. The tax rate is 3%. What are the taxes on this property?

$100,000 Property Value X 33 1/3% Assessed Rate $33,300 Assessed Value - $6,000 Homeowner’s Exemption $27,300 Assessed Value Minus Homestead Exemption - $5,000 Senior Exemption $22,300 Assessed Value Minus Senior Exemption x 3% Tax Rate $669 Property Taxes For This Property

Disputing Property Taxes

In Illinois, properties are assessed every four years (Cook County 3 years), which can be a factor in why a property’s assessment may not reflect its current fair market value. If a homeowner believes that the tax bill is incorrect, that homeowner should carefully read the property description on the tax bill to see whether the description matches the property, i.e. amenities, lot size, etc. Many tax assessors simply drive by the property to verify that it is actually there, but do not know exactly what the property is inside. Therefore, the assessor does not know with certainty that the description is correct.

If the property owner has an incorrect description or measurements on the tax bill, he can bring blueprints, a survey and the like to show



the assessor that the description is incorrect. The assessor might simply change the property’s description without the need to file a formal appeal.

However, if there is need for a formal appeal, the property owner should analyze the assessed values of like properties in the same geographic area or neighborhood to see if the subject property is being assessed the same as comparable properties. Should the owner find that there are differences in lot sizes, amenities, favorable or unfavorable locations, there might be grounds for an appeal. The property owner might choose to hire an appraiser to assess the value and present the appraisal to the appeal board.

Bases for appeal:

• Market value used to assess the property is incorrect;

• Lack of uniformity in the assessed value of the subject property and comparable properties:

• Property description is incorrect;

• Property type is misclassified.

Board of Review or Judicial Appeal

There is a time given during which taxpayers can appeal their tax bills through the Board of Review or in a court hearing. Usually, a taxpayer would start the process by appealing to the Board of Review, but not having received a satisfactory judgment, might choose to file an appeal in court.

The appealing taxpayer needs to bring documentation to support a case for appeal. Some issues to consider when appealing are the



subject property’s criteria as compared to the comparable properties criteria:

• Location in the neighborhood;

• Lot dimensions;

• Square footage, usually available on county assessor’s website;

• Age of buildings;

• Number of stories;

• Number of bedrooms;

• Number of bathrooms;

• Lack of or presence of amenities, i.e. no central air-conditioning, garage, finished basement;

• Type of construction;

• Photos of all properties being cited in the appeal.

Vacating The Property/Non-Use

An owner who was forced to vacate the property because of its uninhabitability or its being physically unusable, may file a tax appeal for the amount of time that the property was vacant. This would affect the assessed value of the structures and not the value of the land. It would not apply to an owner who chose to renovate and move out during the renovation. For the vacant period, the assessor can give a reduction in the taxes.

Acceptable reasons for vacating:

• Fire;

• Flood;

• Gas explosion;



• Mold requiring remediation;

• Roof damage rendering the property uninhabitable;

• Destruction from outside forces:

o Wind, tornado or hurricane;

o Property hit by an airplane or automobile.

The Consequences of Unpaid Property Taxes

Real estate taxes are a first lien (ahead of all others) against the property and therefore, if the taxes are not paid, the taxing authority has the right to force a sale to obtain the money to pay the taxes. There are different types of sales:

• Tax lien sale or Tax sale:

o The purchaser of the tax lien pays the taxes and then owns the right to have the delinquent homeowner pay back the taxes with interest. The tax purchaser does not own the property, but only the right to be repaid with interest and he receives a certificate of sale.

o If the homeowner does not pay the investor within a certain period of time, the “redemption period”, the investor may initiate foreclosure proceedings to acquire ownership of the property itself. Redemption period in Illinois is 2 to 3 years depending on the county and circumstances. The investor will then have the certificate of sale ripen into a tax deed, which he must record within 1 year in the county where the property is located or lose the right to the property.

• Tax deed sale or Scavenger sale (tax foreclosure):

o Held for properties whose taxes have been delinquent for 2 or more years, depending on the county.



o The delinquent homeowner and any lien holders will be notified and the property will be offered at a public sale or auction.

o The property itself is sold to an investor who would minimally pay the delinquent taxes, the accrued interest on those taxes and any other costs involved.

o Should the delinquent homeowner not redeem the property, the investor files a suit in court to take title to the property through a “tax deed”, a “sheriff’s deed” or a “quitclaim deed” and acquires the property free of any other liens against the property.

o Should the delinquent homeowner pay the tax bill or redeem the property during the redemption period, he would pay the investor the amount the investor has paid out, including interest.

o Normally, all mortgages and other liens against the property are eliminated prior to the sale. However, sometimes a mortgage lien survives the property tax lien foreclosure. It may be that the due process notifying all parties with a legal interest in that property about the foreclosure was not carried out. Or it may be that the county in which the property is located did not eliminate the lien in the chain of title.

• Land banks:

o Are governmental entities and not-for-profit corporations that acquire vacant, abandoned and delinquent tax properties that the private sector has rejected.

o Work to find new owners and keep properties from being “problem” properties that negatively affect neighborhoods and instead turn them into productive properties.



o Are usually created as a public entity by local ordinances, redevelopment authorities, housing organizations, governmental planning departments.

o Acquire a property at low or no cost through a tax foreclosure.

o Hold the property tax-free.

o Quiet or clear the title.

o Eliminate back taxes.

o Lease properties for temporary use and revenue acquisition

o Sell to the highest bidder who will use the property in a way that meets the community’s needs. i.e. grocery store.

o Are funded through the revenue acquired from property sales, local and county governments and state and federal grants.

o Can acquire REO properties, residential properties of all sorts, commercial and industrial properties

For more information on Land Banks:

http://www.communityprogress.net/land-banking-faq-pages-449.php

For more information on Cook County Land Bank Authority:

http://www.cookcountylandbank.org/



SPECIAL ASSESSMENTS

While still a governmental tax, special assessments do not fund schools, police, etc and are not levied by the county assessor, but by the local government providing the service. Special assessments are not based on the value of the property, but rather on the cost of the specific service or improvement being provided to the property. Property owners may pay the special assessment in a single payment when the assessment is levied, or in installments with interest. Commonly, the period of installment payments is 5 years.

Typically, the special assessment pays for something that benefits specific private property owners and not the entire community at large. New sidewalks, paving alleys, street lights and the like are examples where a neighborhood receiving these amenities will be taxed via special assessment to pay for them. However, the entire community would not be paying for these improvements, only those who are directly benefiting from them. The cost to each individual property is based on the amount of property (frontage) being impacted by the improvement.

A special assessment is a specific, statutory lien on a property, but it may be voluntary or involuntary. If the municipality decides to pave an alley and tells the owners whose properties abut the alley that they will be paying for the paving, this is involuntary. If the property owners decide that they want the alley paved and ask the municipality to pave it, this is a voluntary special assessment.



Disputing A Special Assessment

A municipality will hold a public hearing to allow property owners who will be affected by a special assessment to come together to protest the special assessment or to say that they are in favor of it. If a sufficient number of the residents protest and object to the project going forward, the project requiring the special assessment could be canceled. However, a special assessment for an improvement to protect the public’s health, welfare, and safety is not able to be protested as it is for the betterment of the entire community.

Designated Special Service Districts or Special Service Areas (SSA) are districts or neighborhoods where the local government adds an additional tax to a property’s tax bill so that the owners in the neighborhood participate in paying for necessary local infrastructure or additional services. The tax may cover providing new sewers, water mains, streets, etc. in a commercial district that is being newly developed for businesses and residences. Those who own and/or occupy within the area being developed may be designated as being in an SSA and paying an additional tax for a certain number of years in order to pay the city for the infrastructure that was necessary to move forward with the building. The tax payment is usually amortized between 10 and 30 years and would appear on the property tax bill.



The Assessment Process (Non-Farmland)1. County Clerk:

• Prepares and delivers two sets of real estate assessment books to the chief county assessment officer (CCAO) by January 1.

2. Chief County Assessment Officer (CCAO):

• Meets with township assessors before January 1 to establish guidelines.

• Delivers one set of books to township assessors.

3. Township Assessor:

• Values/assesses real estate as of January 1 and returns books to the chief county assessment officer.

4. Chief County Assessment Officer (CCAO):

• Reviews assessments and makes changes where necessary.

• Equalizes assessments within county by class (usage) and/or by township (except for Cook County).

• Mails change of assessment notice to taxpayers.

• Publishes changes in newspaper of general circulation.

• Delivers books to board of review by the third Monday in June.

• Prepares tentative abstract of assessment books and mails the abstract to the Illinois Department of Revenue.

5. Illinois Department of Revenue:

• Develops tentative equalization factor.

• Publishes factor in newspaper.

• Holds public hearing.

6. Board of Review:

• Assesses omitted property.



• Acts on all homestead exemptions and mails recommendations about non-homestead exemptions to the Department for approval.

• Hears complaints and makes changes on any property when deemed necessary.

• Mails change of assessment notices to taxpayers.

• Equalizes assessments within county if necessary (except for Cook County).

• Delivers books to county clerk.

• Mails report on equalization to the Department.

• Makes a list of changes and gives the list to the CCAO and county clerk.

7. County Clerk:

• Prepares the final abstract of assessments and mails it to the Illinois Department of Revenue.


• Certifies the final equalization factor to the county clerk and publishes the factor.

9. County Clerk:

• Applies equalization factor to all local assessments (except farmland, farm buildings, and coal rights).


• Certifies state assessments and mails them to the county clerk



Budget, Levy, Tax Extension, and Collection Cycle1. County clerk:

• Totals the equalized assessed value for each taxing district.

2. Taxing body:

• Prepares tentative budget. (Dates differ based on type of taxing district.)

• Publishes notice of public hearing; puts tentative budget on public display 30 days before public hearing.

• Holds public hearing.

• Passes budget with changes in form of ordinances.

• Publishes levy and holds public hearing.

• Publishes Truth-in-Taxation publication and, if required, holds public hearing.

• Gives certificate of levy to county clerk by the last Tuesday in December.

3. County clerk:

• Calculates tax rates for each combination of taxing districts.

• Extends taxes on equalized assessed value and enters in collector’s books.

• Delivers collector’s books to county treasurer by December 31.

4. County Treasurer (serves as the county collector):

• Prepares and mails tax bills by May 1. (Except in counties using accelerated billing, such as Cook,where bills must be mailed by January 31 and paid by March 1.)



• Collects first installments for real estate by June 1. (See exception above.)

• Distributes tax money proportionately to taxing districts as tax money is collected.

• Collects second installment for real estate by September 1.

• Prepares delinquent tax list and sends notice of application for judgment and sale of a lien on real estate due to non-payment of taxes.

5. Circuit Court:

• Pronounces judgment for sale of a lien on real estate due to nonpayment of taxes and rules on tax objections.

6. County Clerk and Treasurer:

• Administers sale of lien on real estate due to nonpayment of taxes.

For more information:http://www.revenue.state.il.us/publications/localgovernment/ptax1004.pdf



SELF STUDY REVIEW

1 T F The Property Index Number (PIN), identifies a piece of land/property for real estate taxation purposes.

2 T F Property taxes attach to the owner of the property.

3 T F Special assessments and property taxes are the same.

4 T FIn Illinois property taxes become a lien on the property as of January 1 of that year but are not due/payable until the following year.

5 T F County assessors determine the fair market value of the property at the time it is sold and do not reassess the value after that.

6 T F Tax incentives or exemptions are only available on a primary residence and not on investment properties.

MAKING SENSE OF RESIDENTIAL REAL ESTATE TAXES



7 T F To receive a Homeowner’s Exemption the owner must be at least 65 years old.

8 T F If a homeowner does not pay the property taxes, the county or taxing body can garnish the homeowner’s wages for the payment.

9 T F Special assessments are used to fund municipal projects that benefit the entire community.

10 T FIf at closing a seller in Illinois does not credit the buyer with the unpaid taxes, the buyer will become responsible for paying them.

ANSWER KEY

1. T

2. F

3. F

4. T

5. F

6. T

7. F

8. F

9. F

10. T

chicagorealtor-12462.kxcdn.com...FAILED FINAL EXAMS:Re-take exams are permitted for those with an...

Documents

Transcript of chicagorealtor-12462.kxcdn.com...FAILED FINAL EXAMS:Re-take exams are permitted for those with an...