Breaking Down Cook County Real Estate Tax

With the pending $588 million Chicago property tax increase, it’s important to evaluate the implications and to understand how taxes are assessed here. The way Cook County calculates property taxes is particularly unique and it can be confusing.

Cook County is the only county in the state that has a different assessment level for different types of property. Since the number of tax parcels in Cook County is so large, one third of the parcels are reassessed each year. As a result, the assessment on a particular parcel occurs once every three years.

The graph of growth of real estate taxCurrently, residential, vacant land, apartments (over 6 units after 2011), and low income rental apartments are assessed at 10 percent of full market value as opposed to not-for-profit, commercial, and industrial properties that are assessed at 25 percent of full market value. The current predicament of state, county and city finances will tend to increase the various tax levies.

Calculation of Tax

However, the calculation of the tax due reaches far beyond the assessment ratio. To calculate the tax due on a property, the assessed value is estimated and then multiplied by a state equalization factor, which is reduced by any applicable exemption such as homestead, senior citizen or returning veterans’ exemptions. Lastly, that figure is multiplied by a local tax rate.

Tax = Assessed Value x Equalization Factor (reduced by proper exemptions) x Tax Rate

State law requires that all properties in every county in Illinois be assessed at a third of market value. However, Cook County has been allowed to assess differently at two assessment levels (10% and 25%) as the county assessments need to be fair relative to the rest of the state. In Cook County, the assessment is equalized to bring the evaluation to the level of properties in other Illinois counties. Determined by the Illinois Department of Revenue, the equalization factor aids in fairly assessing the property tax respective to the location.

Illinois Equalization Factor in Years Prior:
2014 = 2.6922
2013= 2.662
2012=2.8056

Real Estate Tax Bill

The real estate tax bill that is levied against a property is only partially based on estimated value. Assessors estimate value based on a mass appraisal technique for purposes of attempting uniformity of evaluation. Once the proper assessment ratio is applied to the assessor’s estimate of market value, the next component is the one that really shapes the tax bill:

The local tax rate is applied – The rate is based upon the needs of various local districts – schools, water departments, municipal governments, employee pensions, etc., and is tabulated by the County Clerk.

Further, taxes can vary from township to township. If the demands of a local area change, and it experiences decreasing real estate values, the assessed values will also decrease. Where there is a lack of industrial or commercial property that can capture the higher assessment ratio, there could be a higher tax bill than found in an area where there are fewer industrial and commercial properties. The “shortfall” must be spread across the other property owners.

The Forecast

Real estate values will remain relatively stable and as a result the equalization factor may not move much from one year to the next. That leaves the tax rate as the only real option for raising revenues. What long-term effects will this have? It remains to be seen. But, real estate taxes are the largest expense a property will bear, with the exception of debt payments. Ever increasing real estate taxes could gradually push businesses and residences to reevaluate their current locations and possibly explore alternatives.

DeClark Vantage Point

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