By Michael Gunderson
One fact of life that comes with owning property is the inevitable property tax bill that rears its ugly head, taking a sizeable bite out of your client’s wallet. However, for certain residents in Illinois, there are programs in place that could help soften the property tax blow, and help you convince a client to make a purchase. One of these programs provides incentives for owning a certified historic residence, and if your client purchases this type of home, rehabilitating the residence may be rewarding for your client in more ways than one.
The Illinois Property Tax Assessment Freeze Program provides tax incentives for certain construction and improvement projects on historic homes. Specifically, if your client rehabilitates a historic residence, the assessed valuation of the property is frozen for eight years at its level the year rehabilitation on the property begins. The valuation of the property is then brought back to market level over a period of four years.
Of course, there are requirements that must be met for a property to qualify for the Property Tax Assessment Freeze. First, the property must be a registered historic structure, either by listing on the National Register of Historic Places, or designated by an approved local historic preservation ordinance. Second, the property must be used as a single-family, owner-occupied residence or condominium, a cooperative or as an owner-occupied residential building with up to six units. Third, at least 25 percent of the property’s market value must be spent on an approved rehabilitation project. Fourth, the rehabilitation must be substantial and it must significantly improve the condition of the historic building. Finally, the rehabilitation must be done in accordance with the Secretary of the Interior’s “Standards for Rehabilitation.”
In order to see if your client’s home qualifies for the Property Tax Assessment Freeze, you should first contact either your local landmark commission, or the Illinois Historic Preservation Agency, who will determine whether the property is a registered historic structure. A property within a historic district will be certified as a historic structure if it makes a positive contribution to the historic significance of the district. Next, determine the assessed valuation and market value of the property. This can be done by contacting an assessment officer or by referring to your client’s current property tax bill.
If the property qualifies as a historic residence, the next step is for your client to provide the Illinois Historic Preservation Agency with the proposed rehabilitation plans and photographs that show the condition of the property before initiating work. After that, the Illinois Historic Preservation Agency will determine whether both the interior and exterior rehabilitation plans comply with the Secretary of Interior’s “Standards for Rehabilitation.” Once the preliminary plans are approved, your client is ready to proceed with the rehabilitation project. If your client decides to make any changes to the rehabilitation plans during the course of the project, make sure to inform the Illinois Historic Preservation Agency of such changes.
Once the project is completed, forward photographs of the property and the proper documentation to the Illinois Historic Preservation Agency, proving that 25 percent of the property’s market value was spent on the rehabilitation. Any money spent on the physical rehabilitation of the property will qualify, and any money spent outside the historic building will not qualify. Within 45 days of receipt of these documents, and upon final determination that the project meets all of the program’s requirements, a Certificate of Rehabilitation will be issued. This certificate is transmitted to the assessment officer and your client will also receive a copy. Upon receipt, the assessor will make the necessary adjustments.
Please note that your client’s application for the certificate must be submitted within two years of completion of the project. For individuals looking to take advantage of a down real estate market, this might be an excellent opportunity to plan a rehabilitation project of this kind. Contractors and other home laborers seeking to fill the gaps in their project schedules might be willing to take on such a rehabilitation job at a price that might be more palatable for the homeowner. Furthermore, by the time construction is complete, market trends could be more favorable, and your clients just might find themselves with a tidy return on their investment, tax savings and all.
Michael Gunderson is the principal of the Law Offices of Michael Gunderson, a law firm specializing in Real Estate. Gunderson is a graduate of the University of Illinois at Urbana-Champaign and the Chicago-Kent College of Law. He can be reached at 312.399.4089 or [email protected]
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