7% Expanded Homeowner Exemption

Revised- April, 2006

The History

In 2003, Cook County Assessor Jim Houlihan developed the 7% Expanded Homeowner Exemption in an effort to provide immediate relief to homeowners facing skyrocketing assessment increases and the resulting increases in their property tax bills.  This property tax relief legislation was signed into law in July of 2004. The law is set to expire first for the 2006 City of Chicago reassessment and will expire in the subsequent reassessments of the north and south suburbs in 2007 and 2008 respectively. Currently, a proposal to renew this provision is pending in the state legislature.

What Does It Do?

The 7% Expanded Homeowner Exemption slows the impact of a home’s reassessment and provides taxpayers with more stable and predictable property tax bills. 

It increases the exemption amount taken off of the taxable value of a home and ranges from a minimum of $5,000 in equalized assessed value (EAV)* to a maximum of $20,000 in EAV depending on a home’s prior value and its reassessment increase.  The proposal before the state legislature calls for the provision to be renewed for an additional three years and for an increase in the maximum exemption amount from $20,000 to $60,000 in EAV. If the 7% Expanded Exemption is not renewed by the state legislature, the exemption amount will be a flat reduction of $5,000 in EAV for all homeowners.

*The equalized assessed valuation (EAV) is the assessed valuation of a property multiplied by the state equalization factor which was 2.5757 in 2004.

Who is Eligible  for the 7% Expanded Homeowner Exemption?

All Cook County homeowners. The 7% Expanded Homeowner Exemption is available to all homes that receive the Homeowner Exemption.  In order to receive the Homeowner Exemption the home must be owner-occupied and used as a principal place of residence. Homeowners must also be liable for payment of the property taxes. Types of eligible properties include: single-family homes, condominiums, cooperatives, and apartment buildings with up to and including six units.  A homeowner first experiences relief from the 7% Expanded Homeowner Exemption on second installment tax bills the year following his or her property’s reassessment.

Do Taxpayers Have to Apply for the 7% Expanded Homeowner Exemption?

Because the 7% Expanded Exemption is administered as an expansion of the existing Homeowner Exemption, homeowners residing in reassessed townships who have received the Homeowner Exemption in the previous year, automatically receive the expanded exemption.  Residential taxpayers who did not receive the Homeowner Exemption in the last year and who have questions about their eligibility should contact the Assessor's Office at (312) 603-7550 to receive further information.

Will the 7% Expanded Exemption Change How Much a Home Can be Sold For?

No. The expanded exemption will not affect how much a home is worth or could be sold for on the market. Its purpose is to limit the portion of the home’s value that can be used when calculating the amount of property taxes owed each year.

How Does the 7% Expanded Homeowner Exemption Work?

The 7% Expanded Exemption ensures that the taxable value of most homes will not increase by more than 7% in any one year.  Because residential property values are rising rapidly, some homeowners have seen the taxable value of their homes increase anywhere from 25% to 150%.  Under the current system, a homeowner who received an assessment increase by 33% would have that increase factored into his or her second installment tax bill all at once.  Under the expanded exemption, the growth in the taxable value of a home is slowed, and allowed to increase by approximately 7% per year until the next reassessment, rather than increasing by 33% all at once. The Assessor’s Office calculates the amount of savings each taxpayer receives and the savings are automatically applied on tax bills. 

Does the 7% Expanded Exemption Mean that Tax Bills Will Also Only Increase by 7%?

No.  The total amount of taxes due could increase by more than 7% over the previous year.  This expanded exemption does not limit how much the overall tax bill could increase although a homeowner’s tax bill will generally be lower than it would have been without the expanded exemption in place.  While the assessed values determined by the Assessor’s Office do determine the share of property taxes owners are required to pay, local taxing bodies, such as municipalities and school districts, determine the overall amount of taxes.  An increase in value often translates into a higher tax bill. It is important to remember, however, that a 50% assessment increase does not translate into a tax bill that is exactly 50% higher..

When Does the 7% Expanded Homeowner Exemption Take Effect?

Cook County is divided into three areas for reassessment purposes -- the City of Chicago, north suburbs and south suburbs.  The exemption goes into effect during each district’s reassessment, beginning with homes in the City of Chicago, which were reassessed in 2003.  The 7% Expanded Exemption was applied to the 2003 assessment increases and Chicago homeowners saw the benefits reflected for the first time on the second installment tax bills they received in the fall of 2004. North suburban homeowners, whose properties were reassessed in 2004, saw the benefits of the 7% exemption reflected for the first time on the second installment tax bills they received in the fall of 2005. South suburban homeowners, whose properties were reassessed in 2005, will see the benefits of the 7% Expanded Exemption for the first time on the second installment tax bills they receive in the fall of 2006. The legislation calls for the cap to run for one re-assessment cycle for each district, which lasts 3 years. The Legislature is currently re-evaluating the expanded exemption to decide if it will be renewed. If it is not renewed it will expire in 2006 for the City of Chicago, in 2007 for the North suburbs, and 2008 for the South Suburbs.

 
Understanding and Calculating the 7% Expanded Homeowner Exemption

Please Note: It is NOT necessary for a homeowner to calculate his or her exemption amount. The Cook County Assessor’s Office will compute the amount of savings each homeowner receives.

Although the expanded exemption actually reduces a home’s taxable value (EAV) and does not affect market value, most homeowners find it easier to understand the overall concept of this provision if it is discussed in terms of the more familiar market value.  For this reason, the basic example below refers to market value and is for the sake of illustration only. 

Basic example:

John Smith resides in south suburban Cook County and his property was reassessed during the 2005 reassessment of the south and southwest suburbs.  John lives in his home, uses it as his principal place of residence, and qualifies for the Homeowner Exemption.  During the reassessment, the assessor’s market value of his home jumped from $150,000 to $195,000 – a 30% increase.  Under this program, John’s tax bill will appear as though his home increased from $150,000 to $160,500 – a 7% increase, instead of a 30% increase.  His market value will then grow by approximately 7% each year until the next re-assessment, instead of increasing by the full 30% all at once.
 

What Can Taxpayers Due to Help With the Renewal Efforts of the 7% Expanded Homeowner Exemption?

If the 7% Expanded Homeowner Exemption is not passed, homeowners’ tax bills throughout the county will increase significantly.  In the City of Chicago it is estimated that the median homeowner bill will increase by over 30% without the 7% Expanded Exemption.  Therefore, it is important for taxpayers to contact their local legislators and voice their opinions on the renewal of the 7% Expanded Homeowner Exemption.

For Taxpayer Assistance call: 312-443-7550

“A wide variety of elected officials, community organizations, groups and individuals were relentless in their support of the 7% assessment cap from the beginning because they understood how critical meaningful tax relief is to our communities and neighborhoods,” said Houlihan.  “We now need to build on this momentum and extend our commitment to the total restructuring of the Illinois tax system to make it more reasonable, fair and equitable to all taxpayers.”

While the long-term goal is the restructuring of the tax system to reduce Illinois’ over-reliance on property taxes, this first step should be taken now to stop the increasing tax burden that is threatening to destroy Chicago and Cook County neighborhoods.

"Speaker Mike Madigan, Chicago Mayor Richard M. Daley, Cook County Board President John Stroger and I all agree that homeowners need immediate relief. The continued increases in property tax bills, particularly within a system that continues to over-rely on property taxes for funding, cannot be tolerated. I will continue working with leaders at the state and local levels, as well as the many community organizations and homeowners who have been extremely supportive of the 7% proposal, on accomplishing our shared goal of providing meaningful property tax relief," concluded Houlihan.

"The problems with Illinois' tax structure results from an over reliance on local property taxes to fund education. I will continue to work with all local and statewide leaders to find long-term solutions that address these problems and promote this necessary reform."

Assessor Houlihan has been working with a coalition of elected officials, neighborhood organizations and homeowners from throughout the City and County who support the 7% assessment limit because they understand that tax relief is critical to our communities and neighborhoods. The coalition continues to encourage the General Assembly to put property tax relief at the top of their agenda this session. Passage of Senate Bill 1498 next month will help offset the assessment increases seen during the recent City reassessment that ranged as high as 124%.

This fall, Chicago homeowners will receive their second installment property tax bills, which will reflect last years skyrocketing re-assessment increases. The passage of the 7% assessment limit is critical because the only way homeowners will feel property tax relief then, is for this proposal to pass in Springfield now.

To learn how to reach Governor Rod Blagojevich, House Speaker Mike Madigan, Senate President Emil Jones and your district representatives in Springfield, visit http://www.elections.state.il.us/dls/pages/DLSAddresscrit.asp

Elected Officials, Community Groups Announce Support for Neighborhood Preservation Homeowner Exemption Coalition Headed For Springfield Tuesday to Push for 7% Assessment Limit

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Assessor Jim Houlihan discusses property tax relief with reporters  at the Capitol in Springfield, November 18, 2003

CHICAGO - - November 17, 2003 - - Recognizing the need for meaningful and widespread property tax relief in Cook County, members of the Cook County Board, the Chicago City Council, and representatives of community, economic policy and suburban townships gathered on Monday to urge the State Legislature to support Senate Bill 1498, the Neighborhood Preservation Homeowner Exemption (NPHE).

"Cook County homeowners cannot afford to wait any longer for property tax relief. We strongly urge our colleagues in Springfield to embrace this plan for meaningful property tax reform and approve it during this weeks veto session," said Cook County Finance Committee Chairman John P. Daley.

Taxpayers currently have little ability to predict how their assessments and their subsequent tax bills will change from year to year. The current large increases are a function of the rapid escalation of residential property values throughout the County and the County’s triennial reassessment system, which takes all of the growth that occurred over a three-year period into consideration at one time.

"People have great difficulty adjusting to large and unpredictable changes in cost, especially increases," said Arthur Lyons, Director of the Center for Economic Policy Analysis (CEPA). "When government is responsible for that unpredictability, as is the case with the tax system, public confidence can be undermined. Limiting annual assessment increases is an excellent idea. It is a good starting point toward achieving a complete property tax solution."

During the 2003 City of Chicago triennial reassessment, increases of over 30% have been visible throughout almost the entire City, including: Rogers Park [41%], Lakeview [68%], Streeterville [74%], Greektown [96%], Canaryville [72%], Englewood [80%], and Bronzeville [123%].

"The recent dramatic increases in property values have been hard on homeowners wallets," said Rev. Marshall Hatch, Operation P.U.S.H. – Minister’s Division. "The 7% assessment limit will provide relief to residents of all ages and income levels and allow them to remain in their communities."

"While the long-term goal is reducing the over-reliance on property taxes by restructuring Illinois’ tax system, we must first stop the increasing tax burden that is threatening to destroy our neighborhoods," Houlihan said. "We need to take this first step and provide relief to homeowners now, and then keep the momentum going to bring substantial structural change to our overall property tax system."

Houlihan Proposes Neighborhood Preservation Homeowner Exemption
7% Assessment Cap Provides Relief to Taxpayers of All Ages and Incomes

Chicago – October 22, 2003 – In an effort to provide relief to homeowners facing skyrocketing property values, Cook County Assessor Jim Houlihan today proposed an expanded homeowner exemption designed to give homeowners more stable and predictable property tax bills.

The Neighborhood Preservation Homeowner Exemption (NPHE) will act as an assessment cap, assuring homeowners that the taxable value of their homes will not increase by more than 7% in any one year.

“This change will provide homeowners of all ages and incomes with the peace of mind that comes with knowing that they will be able to anticipate and plan for their property tax bills,” Houlihan said at the City Club of Chicago’s public policy luncheon.

“While the long-term goal is reducing the over-reliance on property taxes by restructuring Illinois’ tax system, we must first stop the increasing tax burden that is threatening to destroy our neighborhoods,” Houlihan said. “We need to take this first step and provide relief to homeowners now, and then keep the momentum going to bring substantial structural change to our property tax system in Springfield.”

Taxpayers currently have little ability to predict how their assessments and their subsequent tax bills will change from year to year. The current large jumps are a function of the rapid escalation of residential property values throughout the County and the County’s triennial reassessment system, which takes all of the growth that occurred over a three-year period into consideration at one time.   

Under the Neighborhood Preservation Homeowner Exemption, homeowners can expect:

• Elimination of dramatic increases in assessed value that occurs during reassessment years.

• Creation of a more predictable taxable value of their residential property.

• Protection against future dramatic increases in market value that could potentially drive them out of their neighborhoods.

While in the long run increased property values are desirable, the dramatic widespread increases being experienced throughout the County - - coupled with Illinois’ current over-reliance on property taxes - - are having a devastating effect on taxpayers’ pocketbooks, making immediate relief necessary.

“The Neighborhood Preservation Homeowner Exemption acts as a type of insurance against potential future assessment increases for Chicago and Cook County homeowners. It will provide taxpayers with certainty and protection from the increases that are the result of an unpredictable real estate market and economic climate,” said Houlihan.

“In addition to encouraging residents to remain in their homes, this plan also enables them to welcome neighborhood improvements by eliminating the fear that these desired changes will adversely affect their tax bills,” said Houlihan. “At the same time, potential homebuyers will benefit by being able to budget for the costs of ownership.”

Houlihan said the proposal would be introduced during the November veto session and property tax relief would be reflected in the second installment tax bills received in the Fall of 2004.

The Neighborhood Preservation Homeowner Exemption
Senate Bill 1498 Lang-Currie-Fritchey

In effect, the homeowner exemption would act as an assessment cap, allowing assessments to grow at a steady rate each year until they reach the current property value. This would smooth out the increases over a triennial cycle so that no property would experience the dramatic increases in a single year that currently occur. In times of rapid market appreciation the taxable value would lag behind the actual value of the property. However, in times of slower growth, the taxable value would begin to close the gap with the actual value.

In addition, SB 1498 raises the total household income threshold for the senior citizen assessment freeze exemption from $40,000 to $45,000 per year, increases the homestead improvement exemption from $45,000 to $75,000 and in counties of 3 million or more inhabitants, once a property qualifies for the senior citizen homestead exemption the homeowner need not reapply for the exemption annually.

While the long-term goal is the restructuring of the tax system to reduce Illinois’ over-reliance on property taxes, this first step should be taken now to stop the increasing tax burden that is threatening to destroy Chicago and Cook County neighborhoods.

The Homeowner Exemption was created by state statute in 1978 to protect homeowners from inflationary increases in the value of their homes. When inflation accelerated in the 1970’s, it had its greatest impact on home values, resulting in the price of owner-occupied residential property rising faster than the prices of other types of property. The State responded by enacting the homestead exemption, which excluded from taxation any increase up to $1,500 in equalized assessed value over what it was in 1977, of owner-occupied residential property.

Subsequent amendments to the statute allowed for an exemption amount of $3,000 for tax years 1979-1982, and $3,500 for tax years 1983-1990. In 1992 the statute was further amended to allow a $4,500 exemption in Cook County only, effective for tax year 1991; all other counties retained the $3,500 exemption limit.

Today, under the current homeowner’s exemption, with the base year of 1977, there is a $4,500 limit on the exemption in Cook County. The exemption eliminates up to $4,500 of the increase in a home's taxable value (equalized value) over what it was in 1977.

The Neighborhood Preservation Homeowner Exemption would effectively update the original homeowner exemption and accurately reflect its original purpose – protecting homeowners from rapid rises in value that do not reflect their ability to bear an increased tax burden.