Many potential home buyers looking to purchase real estate in Chicago are unaware of potential property tax issues that could affect their pocketbooks after they purchase. 2016 will be a very interesting year when it comes to real estate taxes in the City of Chicago. Later this year, probably in July, Chicagoans and other residents of Cook County will find property tax bills in their mailbox. Because property taxes are paid in arrears, these bills will be for ownership in 2015. Tax bills for 2015 will be impacted this year by a number of factors. First, 2015 was the year of the triennial reassessment for Chicago. Next, the mayor has passed a budget calling for a large tax increase. Finally, although not affecting 2015 taxes, word comes from an article in today’s Chicago Tribune that if the beleaguered Chicago Public Schools default on their bonds, it is possible that the City’s property owners will have to pay up.
Every three years, Cook County reassesses the values of the homes in Chicago (2015 being the most recent year) that property taxes are based upon. When a property’s assessed value changes, the levy on that property changes as well. While it is not true that a 10% increase in assessed value will lead to a 10% increase in property taxes, it is true to say that property taxes can vary wildly in the first year of a reassessment cycle.
Then, we have the Rahm Emmanuel budget passed by the City that is said to call for an additional $475 of property tax for approximately every $250,000 worth of market value of a property. Those funds will be collected in the second installment tax bill this July. There is additional uncertainty surrounding this increase because of a number of proposals to offer tax relief to certain property owners in the City. A number of different proposals have been floated, but suffice it to say that the money not collected from those properties that are granted some form of relief will have to come from somewhere and that burden is likely to be spread among the properties in Chicago that are not granted relief.
Finally, amidst reports of Chicago Public Schools’ layoffs, budget cuts and possible strikes comes word from the Tribune that the Chicago Public Schools bond contracts contain “a little-known provision that would trigger a property tax increase if CPS fails to pay. The county clerk would deliver that additional revenue directly to a bank – much the way a creditor might garnish an individual’s wages” the article states. The article goes on to indicate that had Chicago missed its debt payment in February, 2015, property taxes likely would have increased by “$725 for the owner of a $250,000 home.” Luckily, it seems that the next dept payment does not have to be made by the schools until early 2017, but if CPS fails to pay that bill, property owners in Chicago will have a rude awakening.
Property taxes and how parties to a real estate contract deal with them are important matters for home buyers to discuss with an experienced real estate attorney. There are a number of techniques that can be suggested to limit or reduce a buyer’s risk when it comes to big tax increases for the time period during which the Seller owned the property but taxes are still unpaid. For any period after closing, buyers are on their own (and need to hold their elected officials accountable!).
If you could use help with understanding how to handle real estate taxes in a real estate purchase transaction, feel free to contact us to see if we are a match to represent you in an engagement.