Property taxes in Illinois can be complex and overwhelming, but understanding the system is essential for homeowners, business owners, and anyone involved in property ownership. Whether you are a first-time homebuyer, a seasoned investor, or just trying to understand how your tax bill is calculated, having a basic knowledge of the Illinois property tax system can help you make informed decisions and ensure you are only paying your fair share.

In this post, we break down the key components of the Illinois property tax system, including how properties are assessed, the tax rate process, some common exemptions available to taxpayers, and what you can do if you believe your property tax assessment is incorrect.

 

The Basics of Property Taxes in Illinois

In Illinois, property taxes are governed by a combination of state statutes and local ordinances, meaning that tax rates, exemptions, and assessments can vary by county and municipality. The state of Illinois does not impose a state property tax; instead, property taxes are generally levied by local government taxing districts to fund essential public services (e.g., schools, emergency services, and infrastructure projects) at the local level. The following section explains the process for calculating property taxes.

How Property Taxes Are Calculated in Illinois

There are four main factors that go into calculating property tax bills in Illinois:

• assessments;
• equalization factor;
• tax rate; and
• exemptions.

I. Assessments

 

Illinois operates under a system where property tax calculations are based on the fair market value of a property. The fair market value (or fair cash value) is the amount for which a property would sell in a competitive and open market under normal conditions. Local county or township assessors generally determine the fair market value using one or more of the following approaches:

Sales Comparison Approach (Most Common)

The sales comparison approach is the most widely used method for determining fair market value, especially for residential properties. For this approach, the subject property is compared to recently sold, comparable properties (referred to as "comps") in the area. Key factors such as location, size, condition, age, and features of the property are considered. Adjustments are made based on differences between the comps and the subject property to estimate its market value.

 

Cost Approach

The cost approach is typically used for newer properties or unique properties that do not have many comparable sales. This method involves estimating the cost to replace the property (or improve it) with a similar one, subtracting depreciation for any loss of value due to age or condition. The land value is calculated separately and added to the depreciated value of the improvements (the buildings and other structures).

 

Income Approach (for Income-Producing Properties)

The income approach is often used for commercial, industrial, or multi-unit rental properties that generate income. It involves estimating the property’s potential income (such as rents from tenants) and applying a capitalization rate (“cap rate”) to estimate the property’s present value.

Once the fair market value is established, local assessors determine the assessed value of a property, which is a percentage of the fair market value. Illinois law requires that the assessment level on most non-farmland property equal one-third (33.33%) of a property’s fair cash value, regardless of whether the property is residential or commercial/industrial.

There are some exceptions to this rule, however, such as different levels for farmland assessments and in counties with a population of more than 200,000 that classify property for assessment purposes. Regarding the latter exception, Cook County is the only county in Illinois that has adopted such a system. In Cook, residential properties (including apartment buildings and vacant parcels) are assessed at 10% of fair market value, while commercial and industrial properties are assessed at 25% of fair market value.

II. Equalization Factor

The equalization factor (or multiplier) adjusts the assessed value of properties to ensure fairness and consistency across Illinois. Its purpose is to equalize assessments, ensuring properties are assessed at approximately one-third of their market value, as required by law. The Illinois Department of Revenue calculates the equalization factor based on average assessments for each county.

• If a county’s assessments are too high or too low, the equalization factor ensures they align with the state’s standard.
• For example, if a county assesses properties at 30% of market value, the equalization factor may be greater than 1 to bring it to the required 33.33%.

III. Tax Rate

 

Once the property’s assessed value   is determined, local government taxing districts (e.g., counties, municipalities, school districts) apply a tax rate (or levy) to calculate the property tax bill. The tax rate is typically expressed as a percentage, and the more taxing districts a property falls under, the higher the overall tax rate will be.

IV. Exemptions

In Illinois, there are several property tax exemptions that can help reduce the amount of taxes owed. As mentioned above, the amount an exemption reduces your tax bill can vary based on county or municipality. Here are a few of the most common exemptions:

• General Homestead Exemption: This exemption is available to homeowners who occupy their property as their primary residence. It reduces the equalized assessed value of the home by up to $10,000, depending on location.

• Homestead Exemption for Persons with Disabilities: Persons with a verifiable disability may qualify for an additional exemption, further reducing the equalized assessed value of their property.

• Senior Citizens Homestead Exemption: Seniors who are 65 or older may qualify for an additional exemption that can reduce the equalized assessed value of their property by up to $8,000.

• Senior Citizens Assessment Freeze Exemption: This exemption helps low-income seniors by freezing the equalized assessed value of their home at a certain amount, preventing increases in property taxes due to rising property values.

 

Calculating the Property Tax Bill

Now, putting all the parts mentioned above together, a tax bill calculation for a residential property in Cook County would look like this: