The ownership of real estate is always subject to certain government powers. One of these is the right of state and local governments to impose (levy) taxes to pay for their functions. Because the location of real estate is permanently fixed, the government can levy taxes with a high degree of certainty that the taxes will be collected. The annual taxes levied on real estate usually have priority over previously recorded liens, so they may be enforced by a court-ordered sale.
There are two types of real estate taxes:
- general real estate taxes (also called ad valorem taxes)
- special assessments (or improvement taxes).
General Tax (Ad Valorem Tax)
Ad valorem is Latin for “according to value.” Ad valorem taxes are based on the value of the property being taxed. They are specific, involuntary, statutory liens. They are charged by various government agencies and municipalities, including:
- states,
- counties,
- cities, towns, and villages,
- school districts (local elementary and high schools, publicly funded junior colleges and community colleges)
- drainage districts,
- water districts,
- sanitary districts, and
- parks, forest preserves, recreation, and other public-use districts.
Exemptions from general taxes
Most state laws exempt certain real estate from taxation. Such property must be used for tax-exempt purposes, as defined in the statutes. The most common exempt properties are owned by:
- various municipal organizations (such as schools, parks, and playgrounds),
- cities and counties,
- state and federal governments,
- religious and charitable organizations,
- hospitals, and
- educational institutions.
Many state laws also allow special exemptions to reduce real estate tax bills for certain property owners or land uses. For instance, senior citizens frequently are granted reductions in the assessed values of their homes.
Properties in Illinois that are totally exempt from paying general real estate taxes include:
- schools,
- religious institutions,
- cemeteries,
- charitable institutions,
- properties owned by federal, state, county, and local governments.
Illinois property taxes are adjusted to reflect certain concessions given on owner-occupied residences. These properties are designated as homesteads. The homestead exemption (not to be confused with the homestead estate) reduces the assessed value of a property subject to taxes. Here are the basic exemptions:
- The Homeowners’ Exemption applies to owners of single-family homes, condominiums, cooperatives, and one-to six-unit apartment buildings. The amount of exemption is currently $6,000.
- The Senior Citizen’s Homestead Exemption is available to homeowners over the age of 65.
These exemption amounts are subtracted from the property’s equalized assessed value before the tax rate is applied. This exemption reduces the equalized assessed value of a senior’s home by $4,000. - The Senior Citizen’s Assessment Freeze Homestead Exemption program allows Illinois seniors
to freeze their assessed valuation for the remainder of their lifetime once they have turned 65 if household income does not exceed $55,000. Annual application and proof of income must he filed with the county assessor. - The Homestead Improvement Exemption allows any Illinois homeowner who has recently improved her home (by adding a new family room, for instance) to delay an increase in the home’s overall assessed value for up to four years. This exemption is available up to an improvement value of $75,000.
Property owners may qualify for other tax concessions based on their status as disabled veterans or by virtue of improvements to the property, certain maintenance and repair expenses, solar heating, airport land, farmland, rehabilitation of historic buildings, and location within enterprise zones or tax concession districts.
Assessment
Real estate is valued for tax purposes by county or township assessors or appraisers. This official valuation process is called assessment.
A property’s assessed value generally is based on the sales prices of comparable properties, although practices may vary. Land values may be assessed separately from buildings or other improvements, and different valuation methods may be used for different types of property.
In all counties except Cook, real property is assessed at 33-1/3 percent of fair market value.
In Cook County residential real property is assessed at 16-1/2 percent of fair market value, but the state requires that Cook County apply an equalizer factor of approximately 2.02 to bring the actual tax up to the State mandated 33-1/3 percent.
Adjustment of Taxes
Taxpayers who think that a mistake has been made in their property’s assessment may:
- file a complaint directly with the county assessor.
- If the taxpayer’s complaint is denied, the decision may be appealed to an administrative board of review (in Cook County, the Board of Appeals).
- Alternatively, the taxpayer can bypass the county official and go directly to the board of review.
- If the taxpayer is dissatisfied with the board’s decision, she may appeal to the Illinois Property Tax Appeal Board or to the circuit court of the county in which the property is located.
Creating the tax bills
After the budgets and value of total property have been utilized to determine the tax rate, a property owner’s tax bill is computed by applying the tax rate to the assessed valuation of the property.
Generally, one tax bill that incorporates all real estate taxes levied by the various taxing districts is prepared for each property. Some tax purposes or tax targets (like the park district) are split out and easily identifiable on most bills. In some areas, however, separate bills are prepared by each taxing body.
In Illinois, the county collector prepares and issues only one combined tax bill to each parcel of property.
Validity of tax liens
Real estate taxes must be valid to be enforceable. That means they must be levied properly, must be used for a legal purpose, and must be applied equitably to all property. Real estate taxes that have remained delinquent for the statutory period can be collected through a various means.
Annual Creation of the Tax Lien
General real estate taxes are levied annually for the calendar year and become a prior first lien, superior to all other liens, on January 1 of that tax year.
However, they are not due and payable until the following year. In other words, Real Estate Taxes in Illinois are paid in arrears.
Payment of Tax Bills
In all Illinois Counties, except Cook County, the first payment is due on June First and the second installment is due on September 1St, In Cook County the first payment (55% of the previous year’s taxes) is due the first business day in March. The second payment (based on the final calculation of the annual taxes) is due some time in October, and possibly November (dates vary).
Enforcement of the Tax Lien
The statutory requirements for enforcement of tax liens are complex. When a property owner fails to pay taxes on real estate in Illinois, the property ultimately may be sold in one of three ways:
- At an annual tax sale (Investor pays taxes for the owner)
- At a forfeiture sale
- At a scavenger sale
Annual Tax Lien Sale (Solicitation of Investors to pay Delinquent Taxes)
If the taxes on a property have not been paid by the due date of the second installment, the county collector can enforce the tax lien and request that the circuit court order a tax sale. The county has notification requirements that are prescribed by statute. These requirements include:
- publication in a newspaper of general circulation within the community
- a certified or registered mailing to the last known address of the taxpayer.
The court will render judgment in favor of the county if the taxes are shown to be delinquent and proper notice has been given. The court order allows only the sale of the tax lien, not the property itself.
Prior to the time of sale, the owner and any other party with a legal interest (except undisclosed beneficiaries of a land trust) may redeem the property and stop the sale by paying :
- the delinquent taxes,
- applicable interest,
- publication costs.
Successful purchasers at the sale are those who offer to pay :
- all outstanding taxes,
- interest,
- publication costs,
- processing charges,
- the county treasurers indemnity fund fee.
If competitive bidding results, the bid is for the lowest rate of interest that will be accepted by the bidder in case of redemption during the first six months of the redemption period. The only persons not allowed to bid at the sale are owners, persons with legal interest, and/or their agents. The successful bidder must pay with cash, cashier’s check, or certified check. Upon payment, the purchaser receives a certificate of purchase. The certificate will ripen into a tax deed if no redemption is made within the statutorily prescribed period.
The statutory time period allowed for redemption on properties with six or fewer units is 2-1/2 years from the date of sale. If the property is not redeemed by the owner within the period allowed, the tax sale purchaser is required to give notice to the delinquent owner and other parties who hold any interest in the property before applying for a tax deed.
Forfeiture sale of the Property
If there are no bids on a property at the annual tax sale, the property is forfeited to the state, although title does not really change.
The owner may still redeem the property after forfeiture by paying delinquencies, publication costs, and interest. On the other hand, anyone who wants to purchase the property for the outstanding taxes may make application to the county. If this happens and the owner does not claim the property within 30 days of notification, the applicant will be issued a certificate of purchase once she pays the outstanding taxes, interest, and other fees.
If redemption is later made by the original owner, the certificate holder must be compensated based on 12 percent interest for each six months the certificate was held.
Scavenger sale of the Property
If the taxes have not been paid on a property for two years or more, the property may be sold at a scavenger sale.
The county must go through the same court process as it would for tax sales and receive an order of sale. The property is sold to the highest bidder. The buyer is not required to pay the tax lien but must pay current taxes. In this case, former owners may not bid on their delinquent properties, either in person or through an agent, nor may individuals who are delinquent on their taxes by two or more years.
Special Assessments (Improvement Taxes)
Special assessments are taxes levied on real estate to fund public improvements to the property. Property owners living nearest to the improvements are required to pay for them because their properties benefit directly from the improvements.
Special assessments are always specific and statutory, but they can be either involuntary or voluntary liens. Improvements initiated by a public agency create involuntary liens. However, when property owners petition the local government to install a public improvement for which the owners agree to pay (such as a sidewalk or paved alley), the assessment lien is voluntary.
Special assessments usually are due in equal annual installments, plus interest, over a period of five to ten years, with the first installment usually due during the year following the public authority’s approval of the assessment. The first bill includes one year’s interest on the property owner’s share of the entire assessment; subsequent bills include one year’s interest on the unpaid balance. Property owners have the right to prepay any or all installments to avoid future interest charges.
The annual due date for assessment payments in Illinois is generally January 2.
Special Service Areas
Special Service Areas (SSAs) are special taxing districts in municipalities that are established by ordinance, often at the request of developers of new housing subdivisions, in order to pass on the costs of the streets, landscaping, water lines, and sewer systems to homeowners who reside within the SSA. The SSA assessments pay off the municipal bonds that are issued to pay for the infrastructure. Assessments are billed annually on property tax bills, generally for a period of 20 to 30 years.
