If you live in the Chicago area—many of The Retirement Network’s clients do—there’s a good chance that property taxes are one of your largest annual expenses. In fact, property taxes in Chicagoland, on average, are higher than in 93 percent of the country, according to data from ATTOM Data Solutions cited in Crain’s Chicago Business.
Benjamin Franklin was correct in identifying taxes as one of two things in life that are inevitable. Still, there are steps Illinois residents can take to lower their property tax bills—especially if they are seniors. And a recent law change made one of these methods accessible to more homeowners in 2019. Also, taxpayers need to be aware of how changes at the federal level have limited taxpayers’ ability to deduct their property taxes.
RELIEF FOR ILLINOIS SENIORS
Illinois offers several types of property tax relief for homeowners age 65 and older:
* Senior Citizens Assessment Freeze Homestead Exemption (“Senior Freeze”) – The Senior Freeze, enacted in 1994, is available to homeowners at least 65 years old with a household income under $65,000. This may seem like a relatively low level, but it’s actually an increase of $10,000 from last year’s limit of $55,000. Essentially, this exemption freezes an eligible homeowner’s equalized assessed value (EAV), which is used to calculate property taxes, at the level of the year before the homeowner first applied for the exemption. So, if you are eligible for the Senior Freeze, all future EAV increases over the base amount will be exempt; there’s no exemption maximum or property value maximum. Keep in mind, though, that the Senior Freeze won’t freeze your tax bills or tax rates—just the taxable value of your property. So, your property tax bill could still go up if your taxing district increases its rates. It’s also important to note that the Senior Freeze only applies to your primary personal residence.
* Senior Citizens Homestead Exemption – This exemption, available to homeowners age 65 and older, will reduce the EAV of your primary residence by $8,000 if you live in Cook County, or $5,000 for other Illinois counties. If you qualify for the Senior Citizens Homestead Exemption, you automatically also qualify for the General Homestead Exemption, which is $10,000 for homeowners in Cook County and $6,000 for those in other counties.
* Senior Citizens Real Estate Tax Deferral Program – If you are 65 or older and have household income of $55,000 or less, you can defer up to $5,000 of real estate taxes and special assessments on your primary residence. The state of Illinois will pay the property taxes and then recover the money, plus 6% annual interest, when you sell or transfer your property.
The above programs apply specifically to seniors, but other programs that aren’t age-based include:
* Long-time Occupant Homestead Exemption (for Cook County only)
* Homestead Exemption for Persons with Disabilities
* Veterans with Disabilities Exemption for Specially-Adapted Housing
* Standard Homestead Exemption for Veterans with Disabilities
* Homestead Improvement Exemption
* Natural Disaster Homestead Exemption
For more information on any of these exemptions, including filing requirements and deadlines, please contact The Retirement Network. We can help you understand which exemptions you may be eligible for, and we can assist you in applying for the exemptions.
NAVIGATING THE NEW SALT LIMITS
Did you know that the amount of property taxes you pay at the local level affects the income tax you pay at the federal level? That’s because people who itemize deductions on their federal tax returns can claim property taxes as a deduction.
But, starting in 2018, the amount of that deduction is now limited. Previously, you could deduct 100% of state and local income taxes, plus 100% of your property taxes. So, if you itemized, you essentially had no limit on the deductions you could take for state and local taxes (SALT).
But as part of the new tax laws passed at the end of 2017, itemized deductions for personal SALT amounts are now limited to a combined total of $10,000 per couple (or $5,000 if you are married and file separately).
For some people, the impact of the new SALT limits might be somewhat blunted by another change in the new tax law—the large increase in the standard deduction. If you are married and filing jointly, your standard deduction almost doubled, from $12,700 to $24,000. And if both you and your spouse are 65 or older, the deduction is now $26,600. This dramatic increase has prompted many taxpayers to move away from itemizing deductions and claim the standard deduction instead.
Determining whether you will be better off itemizing deductions or claiming the standard deduction can be somewhat complicated. So, it’s important to talk with your tax advisor as you think about your tax strategy for 2019.
At The Retirement Network, we know that taxes have a major impact on your annual budgets in retirement. That’s why we’re committed to helping you understand the various deductions, credits, and exemptions available at the federal, state, and local levels. If you have questions about any of these potential tax-savings opportunities, please don’t hesitate to contact us.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.