How Chicago property taxes work.

How Chicago's Property Tax System Works

Chicago’s property tax system is complex and consists of several key elements: It is important to understand each one:

1. Assessment by Cook County Assessor

   • Properties are reassessed every three years based on market value.

   • The county uses a classification system, where different property types are assessed at different percentages of their market value.

2. Assessment Ratios

   • Residential (1-6 units): Assessed at 10% of market value.

   • Commercial & Multifamily (7+ units): Assessed at 25% of market value.

3. Equalization by Illinois Department of Revenue

   • Since Cook County assessments are lower than full market value, the state applies an equalization factor (also called a "multiplier") to adjust values closer to full market value.

   • The equalization factor varies yearly but is usually between 2.7 and 3.3.

4. Tax Rate Applied by Local Authorities

   • Multiple taxing bodies (city, county, schools, parks, etc.) determine the total property tax rate.

   • The combined tax rate in Chicago is typically 6-7% of equalized assessed value (EAV).

Example: Property Tax Calculation for a 10-Unit Apartment Building

Let’s assume:

• Market Value: $2,000,000

• Assessment Ratio for Multifamily (7+ units): 25%

• Equalization Factor: 3.0

• Tax Rate: 6.5%

Step 1: Assessed Value Calculation

Assessed Value=Market Value×Assessment Ratio\text{Assessed Value} = \text{Market Value} \times \text{Assessment Ratio}Assessed Value=Market Value×Assessment Ratio =2,000,000×25%=500,000= 2,000,000 \times 25\% = 500,000=2,000,000×25%=500,000

Step 2: Equalized Assessed Value (EAV)

EAV=Assessed Value×Equalization Factor\text{EAV} = \text{Assessed Value} \times \text{Equalization Factor}EAV=Assessed Value×Equalization Factor =500,000×3.0=1,500,000= 500,000 \times 3.0 = 1,500,000=500,000×3.0=1,500,000

Step 3: Property Tax Calculation

Property Tax=EAV×Tax Rate\text{Property Tax} = \text{EAV} \times \text{Tax Rate}Property Tax=EAV×Tax Rate =1,500,000×6.5%=97,500= 1,500,000 \times 6.5\% = 97,500=1,500,000×6.5%=97,500

Final Property Tax Bill: $97,500 per year

Key Takeaways for Investors

• Multifamily properties (7+ units) have a higher tax burden than smaller residential buildings due to the 25% assessment ratio.

• Appealing property assessments can reduce tax liability.

• Property taxes can significantly impact cash flow, so investors should account for potential reassessments when underwriting deals.

• New developments may qualify for tax incentives (e.g., Class 9, Affordable Housing exemptions).