Tax freeze program may be for you
On the homefront
We live in an idyllic historic community that is defined by its gridded tree-lined streets and a variety of traditional architecture. Twenty years ago we pictured our children growing up under this canopy of protective shade trees. Like many other young families we migrated from our renovated Lincoln Park 1890’s grocery store to a new park called Oak Park. We were attracted by the quality of the schools, the small town atmosphere and the architecture. Affordability sealed the deal, as we were able to purchase a beautiful historic stone home for much less than a home at our previous location.
Now, affordability confronts us again in the form of the dreaded and relentless property tax. Home improvements, attracting the tax assessor’s attention, can stimulate your property taxes. Yet we must maintain and protect our investment. A popular Property Tax Assessment Freeze (over a dozen issued yearly in Oak Park) is available for the taking without a fee. Currently, 307 property taxes are frozen by the program out of 18,968, or 1.7 percent of total homes in Oak Park. This is how it works:
Let’s say you own a home within a historic district. The property was assessed in 2009 at $500,000, and you want to spend $125,000 (25 percent of market value is required) to put in a new kitchen and spruce up your master bath. Using the actual 2008 property tax rate of 8.57 percent as a proxy, your new post-improvement taxes would average $13,100/year. Using the same scenario, and utilizing the Property Tax Freeze incentive, your average annual tax liability would only be approximately $10,600/year. Here’s why.
The Property Tax Freeze scenario amount is calculated using the "frozen" 2009 pre-improvement assessed value of $500,000, rather than the theoretical new and improved value of $625,000. This lower tax basis alone saves you approximately $30,000 over the course of the 12-year incentive life (eight-year tax freeze period plus four-year ramp up adjustment to market value), or an average of $2,500 annually. These savings can help offset your upfront investment by 24 percent over the life of the incentive.
The savings impact becomes even more impactful if we assume a conservative increase in assessed values. Using my home in Oak Park as an example, our assessed value has increased on average 4.23 percent per annum since ’93, and five percent since ’00. Assuming a conservative 2.5 percent annual assessment increase (50 percent lower than the average since ‘00) the total savings over the next 12 years would equal approximately $51,000, a whopping 41 percent discount off the same $125,000 investment.
To further illustrate the power of this incentive, at the assumed 2.5 percent appreciation increase, the $125,000 investment would increase in value $43,000 over the course of the Property Tax Freeze incentive life (assuming assessed value equals market value). Add this to the tax savings above and the total benefit in cash and value could be as much as $94,000. Now, that’s exciting! This equates to a 5.58 percent compounded rate of return over 12 years, double the 2.5 percent appreciation assumption. The takeaway is this: Strike when the iron is hot!
The process is relatively straight forward if you live in a historic district and your single-family house or condominium is a contributing resource. However, making an application that follows the Secretary of Interior’s "Standards for Rehabilitation" can be interpretive. Consult an experienced preservation architect. Developers can take advantage of the program as it provides for transfer to the first owner. For all the details see the Illinois Historic Preservation Agency web site at: www.state.il.us/HPA/ps/taxfreeze.htm.
This is a wonderful program that encourages sensitive preservation of historic homes.
Furthermore, the assessor’s office has indicated that after last year’s seven percent decrease, property taxes are likely to go up next year, making it more compelling to consider a timely course of action. The dream could come true if you are in a position to take advantage of the Tax Freeze.
Garret Eakin is a preservation architect that has lived in Oak Park for 20 years, a preservation commissioner and an adjunct professor at the School of the Art Institute. Mike Furr, a professional analyst, provided the breakdown for this article.