Real Estate Tax
Real estate tax, also known as property tax, is a tax
levied on real property, usually in an ad valorem
manner (i.e. in proportion to the value of something).
Generally, real property refers to land, buildings
and their structural components.
Historically, the American real estate tax has its origins in
old England where funds were raised for the
purpose of supporting military
expeditions. The tax known as Danegeld was equivalent to 2 shillings per each 100 acres.
It was first imposed during the year 868. From that time on, it was imposed whenever someone
needed to be conquered. The property tax became
so important that the concept was addressed
in the Magna Carta. From England to the Colonies,
the concept eventually came to be looked upon
favorably as a stable and predictable source of revenue. The
property tax has been referred to as the price
of civilization.
Illinois does tax real estate and they do it
quite aggressively. Revenues generated by the
real estate tax are used to fund local government,
particularly education.
Examples of real estate which is taxed are:
- Manufacturing facilities
- Shopping centers
- Leaseholds
- Mineral rights
- Air rights
- Pipelines
- Single family houses
- Apartment buildings and Condominium developments
Illinois,
Cook County and numerous municipalities also
tax the transfer of real estate. Consult with
local counsel for details.
Valuation
Methods
Listed below are the most common methods
used by assessing officials in determining the
market value of property.
Cost Approach:
The cost to duplicate less depreciation plus land value.
Income Approach:
A capitalization rate is applied to the stabilized net income
that is generated by the property.
Market Approach:
A parameter is premised upon what other nearby comparable properties
sold for (i.e. regression analysis when a very large sampling is
analyzed).
Most assessing officials rely on a combination
of these 3 methods. The key to successfully challenging an assessment
is to do a better job than the assessor while applying these methods.
Appraisals
By far the most powerful and persuasive
form of evidence that can be used to prove market
value. A high quality appraisal is performed by
a state certified 153 General Appraiser and is
expensive. For that reason, I only order appraisals
when it appears that it will be cost-effective
for the client.
The major advantage of an appraisal is that it
gives the assessing official something tangible
to base their assessment on. Without an appraisal,
the assessing official is forced to rely on homemade
data which is often overly conservative and tends
to value the subject
property at a higher-than-realistic value.
The Cook County Board of Review encourages
the use of MAI or CAE appraisals for larger
properties. An analysis of results from the
Board of Review during 2003 showed that those
appellants who engaged such an appraiser fared
much more favorably than those who offered other
types of evidence. Traditionally, an appraiser with the MAI designation represented the highest in terms of quality and integrity. Sadly, that distinction no longer necessarily applies to all MAI appraisers. It is presumed that the Appraisal Institute is now striving to maintain the highest standards.
As of June 6, 2005, the Cook County Assessor
no longer requires an appraisal for a property
that is fully or partially leased. According
to Assessor Houlihan, an appraisal with a date
of value within one year of the date of reassessment
is fresh enough and will be considered
as evidence of market value (5/29/03).
Economic
Development
For more information regarding tax incentives
and economic development, please go to our Rapid
Reference Index.
For information regarding tax incentives in Cook
County, please go to our section on TAX
INCENTIVES.
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