Law allows landlords to claim multiple homestead exemptions

Law allows landlords to claim multiple homestead exemptions

Call it a "quirk" or "loophole" in the Illinois Property Tax Code.

Some area landlords are taking advantage of a provision and reading of the tax code that lowers assessments on their properties, in effect reducing their tax obligations and shifting the tax burden to others.

It has to do with the homestead exemption, which as of this year reduces a property's assessment by $6,000. Although many people are under the impression the homestead exemption is available only to those who own and live in their home, some property owners who rent single-family homes to others are claiming it.

And it's legal.

"It's not equitable to the rest of the taxpayers. ... The way the tax system works, when someone has exemptions, someone else has to make up that difference," said Gary Crane, assessor for Ludlow and Rantoul townships.

In Rantoul Township, the retirement community Prairie Village has claimed so many exemptions, including the homestead and senior exemptions, the main property's assessment has been reduced so much "it more than offsets their entire assessment," Crane said. He called it a "quirk or loophole in the system."

As a result, Prairie Village, with a market value estimated at $2.2 million according to the assessor, has not paid any property taxes on its main property. (It has paid about $7,000 total on neighboring parcels.)

"There is probably not a supervisor of assessments in the state who thinks this is a good law. It creates a ton of paperwork for us, and I think it goes beyond the legislative intent," said Stan Jenkins, supervisor of assessment for Champaign County. "I really disagree with it."

However, in Vermilion County, Supervisor of Assessments Matt Long, who owns rental property but does not claim the exemption, said landlords claiming the homestead exemption can pass on the savings to their tenants.

"In an effort to keep rent down, when everything else is going up, landlords are trying to find ways to keep from upping the rent on their tenants," Long said.

He said he has seen some landlords who have rent-to-own contracts use the exemption, but beyond that only a handful in Vermilion County.

In Champaign County, Jenkins said there are 1,520 single-family homes being rented out in which the property owner has filed for the homestead exemption. Each property's assessment is reduced by $6,000, bringing the total amount of reduced assessment to $9.1 million. Multiply that by an average tax rate of 8 percent, and the amount is roughly $730,000 that did not go to county taxing bodies. (Property taxes are calculated by multiplying the tax rate with the property's equalized assessed value. The lower the assessment, the lower the property taxes.)

"It is a lot of revenue," he said, adding, "I wish someone would challenge this in court."

How it works

The homestead exemption in Illinois dates back to the 1970s. At the time, housing inflation was on the rise, and the homestead exemption was a way to provide some property tax relief. According to the Illinois Property Tax Code, the annual exemption is available for residential property that is "occupied as the principal dwelling place of the owner, or a lessee with a legal or equitable interest in the property with a single-family residence, who is liable for the payment of the property taxes on the leased property."

Homestead exemptions are not unique to Illinois. Many other states have them, with some dating back to the Great Depression, according to University of Illinois economist Daniel McMillen.

What many people may not readily realize is that when anything gives relief, such as a homestead or senior exemption, the tax burden tends to shift to other properties, such as commercial, industrial or other residential properties, McMillen said.

In 1996, in response to a legal question posed to the Illinois attorney general's office, then-Attorney General Jim Ryan issued an opinion on when a leaseholder may qualify for homestead exemptions, said Illinois Department of Revenue spokeswoman Sue Hofer. The question stemmed from a situation pertaining to single-family homes built on 99-year land leases in a lakeside development.

If a tenant is legally responsible for payment of property tax, he or she can claim the homestead exemption, Hofer said.

"It's a gift to landlords," said Esther Patt, former Urbana City Council member and coordinator at the Champaign-Urbana Tenant Union.

"Basically the cities, the county, MTD, schools and other taxing bodies are losing money because what is supposed to really be given to single-family homes owned by the homeowners are going to those that have income property," she said.

Some rental agreements for single-family homes in the area now are being drafted with language that states the tenant is liable for the payment of real estate taxes and the tenant's liability for the taxes is through the monthly rent payments.

Patt said some tenants have been confused by the clause in the lease, and she has advised them to make sure it states the tenant's obligation for paying real estate taxes is satisfied by the tenant's paying taxes through their rent. Occasionally, she has had to contact the county if a tax bill ends up with the tenant's name on it instead of the property owner.

The property tax bills are not mailed to the tenants; they still go to the owner, Jenkins said.

"The law has been on the books for a long time, but many people were not aware of it until probably about 10 years ago," said Randy Hughes, past president of the Central Illinois Apartment Association and president of Hughes Real Estate in Champaign. His company rents single-family homes that have the homestead exemption. "It's not difficult to do," he said about adding the language in leases and obtaining signatures and sending copies of leases to the assessor's office.

"It's a little time-consuming to get the signature, but it does give a little break on the real estate tax bill. ... There's nothing added to the monthly payment, but the tenant gets a little bit break (in rent) because the owner has lower expenses.

"It seems only fair to me," he said.

Owners of multifamily apartment buildings cannot claim the exemption, but some retirement or "life care" communities can claim it if their residents sign leases with similar language, Jenkins said, such as the case with Prairie Village.

Jenkins said he started noticing the exemptions being claimed by landlords "in a big way" about four or five years ago.

All requests must all go through the supervisor of assessments' office, he said. The landlord must fill out an application for the exemption and provide the county with a copy of the signed lease. If someone claims the exemption for the 2011 tax year, the landlord needs to have the lease signed by Dec. 31, 2010, for it to take effect for the 2011 tax bill that's payable in 2012.

"It is just a mess that creates a ton of paperwork," and additional demands on staff time, Jenkins said.

As for Long, he said being able to claim the homestead exemption on single-family income property is "a way for property owners to keep their better tenants by passing on the cost savings to their tenant."

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asparagus wrote on September 18, 2011 at 9:09 am

Is this exemption available to all home owners?

selguy wrote on September 18, 2011 at 5:09 pm

This loophole allows landlords to get the same exemption that owner-occupants already receive

asparagus wrote on September 19, 2011 at 9:09 pm

Owner occupants receive this by default or what???

Mike Howie wrote on September 19, 2011 at 11:09 pm
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Thanks for the question. You do have to apply. Here's a link with more info:

Mike Howie
online editor

bb wrote on September 18, 2011 at 6:09 pm

I could swear I read this story a week or so ago. Is it recycled or am I having a severe case of deja vu?

selguy wrote on September 18, 2011 at 8:09 pm

it is recycled

Mike Howie wrote on September 18, 2011 at 9:09 pm
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Thanks for the comment. Our print subscribers got this first, so you would have read it in print. It has not been online until today.

Mike Howie
online editor

screader wrote on December 07, 2011 at 8:12 am

Any idea if this law intends to be challenged and prevent landlords from taking the exemption?

I think it is great and wish we had this exepmption as landlords in South Carolina.  I believe our code (SC 15-41-30) indicates the owner must be the resident/occupant.

Appreciate any updates.