Homestead tax credit disappears leaving higher taxes in its wake

For many Cook County residents, their 2012 property taxes will increase and they probably won’t know why. The major change in state tax policy was overshadowed by the confusion of the special session in July. The tax bill was approved by state lawmakers and signed by the Governor as a part of the budget agreement that ended the 20-day stalemate.

The change is -- no more homestead credit. This cornerstone for keeping property taxes lower meant the state paid local governments a portion of the taxes levied on a primary residence declared a homestead. Legislators replaced the homestead tax credit with a Homestead Market Value Exclusion. The exclusion equals 40 percent of the first $76,000 in market value, or $304.  The exclusion is reduced by 9% of the market value over $76,000 until it hits $0 at $413,800 market value.

That move gives the state $261 million a year more to help balance its own budget woes, but may force municipalities and counties into raising local levies. Even if levies remain the same, individual property taxes will still likely go up. Cook County Auditor-Treasurer Braidy Powers:

“County-wide we will be losing an estimated $278,000 of what we might have received for 2012 for the Market Value Credit. It amounts to about three percent of all the local levies in the county. Each taxing authority: city, county school, hospital and towns, received a share of the market value credit money from the state to offset each of their levies. City of Grand Marais will be hit harder than others. They would be closer to six percent.”

About $181,000 of that figure will be lost to the county and may figure into county board deliberations on the 2012 budget. The remaining $97,000 is the estimated amount the other government entities in the county will not receive and may need to make up through increased levies.

Properties valued at $76,000 will be hit proportionately the hardest. In 2011 a property at that value with a 0.5 tax rate had a gross tax of $380. The homestead credit reduced that to an adjusted tax of $76.  In 2012, the same property with the new market value exclusion and the same tax rate will have its taxable market value reduced to $45,600, resulting in an adjusted net tax of $228. That’s a triple increase.

By contrast a homestead valued at $150,000 would see an estimated property tax increase of $118. A $276,000 property would see an estimated $62 increase.

Bottom line is that homesteads receive a lesser benefit, the state gets the benefit and your taxes go up.