September 28, 2021
By: Richard Lee Stavins
Real estate taxes in Illinois are levied as a percentage of the value of the real estate as of January 1 of each tax year, and the tax automatically becomes a lien on the real estate as of that day. Thus, the 2021 real estate tax that is assessed on a particular parcel of real estate will depend on the parcel’s value as of January 1, 2021. In theory, the 2021 tax is due in 2021 and if not paid in 2021 is deemed delinquent, the lien will be foreclosed by the County, and the property will be sold at auction, all in 2021. Right? Wrong.
In Illinois and several other states, the real estate tax is due in the year after the tax was assessed and became a lien. So, the 2021 tax, which is based on the January 1, 2021 value, will not be payable until 2022, the year after the tax has gone delinquent and became a lien on the property. And, the amount of that tax will not be known until 2022 when the governmental entities figure out how much they want to tax you for the prior year. The real estate tax bill always goes out during the year after the year being taxed. Not until 2022 will the 2021 tax be known and billed for the January 1, 2021 valuation and lien.
This goofy system creates a small headache whenever a parcel of real estate is sold. Logically, the seller should be responsible for the amount of the tax for the year of the sale up to the date of the closing, and the buyer should be responsible for the amount of the tax for the year of the sale after the date of the closing. This is called the real estate tax proration. But, if the closing is in 2021, for example, the amount of the 2021 tax won’t be known until mid-2022, and so when there is a closing in 2021 no one knows for certain the amount of the tax that is to be prorated.
Real estate lawyers have created various devices to try to deal with this problem, none perfect.
Why this goofiness in the real estate tax? It goes back to year 1934. Until then, real estate taxes were payable in the year of the tax. The 1932 tax was payable in 1932, the 1933 tax was payable in 1933, and everyone thought the 1934 tax would be payable in 1934. But then something happened.
The 1930s was the time of the Great Depression. Things were so bad financially that people could not afford to pay the real estate tax on their homes and many simply stopped paying. The result was that the collection rate on the tax was falling below 50% and those who did pay in 1933 were beginning a taxpayers’ revolt, proclaiming that they had no money and were not going to pay the tax in 1934. The legislature was sympathetic and responded with a temporary one year solution. The legislature decreed that the 1934 tax did not have to be paid until 1935, effectively creating a real estate tax holiday in 1934. Taxpayers rejoiced. Governmental agencies wept.
Ah, but there’s no free lunch when it comes to taxes. Remember, the tax was not repealed for 1934. There was only a one year delay in payment of the 1934 tax until 1935. Came 1935, the 1934 tax was due. But in 1935 the 1935 tax was also due, which meant that people were expected in 1935 to pay not one but two years’ taxes – the delayed 1934 tax and the on-time 1935 tax. Heck no, said the taxpayers. Okay, said the legislature, pay the 1934 tax in 1935 and we’ll give you a one year delay until 1936 for paying the 1935 tax.
You correctly guessed what happened in 1936: same situation. And then, year after year, nobody wanted to confront the problem and have a year where two years’ taxes had to be paid. And so, every year thereafter there was another one year delay. And that’s where we still are today, 87 years later. Every year, the payment of that year’s real estate tax is delayed one year. In theory, someday they’ll catch up and have that one year like they were going to have in 1935 where two year’s taxes will be due, to make up for that year 1934 when no taxes were due.
Of course, no one any longer recalls the tax holiday of 1934 – other than readers of this article. So, any politician who now votes for paying two years’ taxes in one year will effectively have voted to double the real estate tax for that one year – which means every such politician will be summarily voted out of office at the next election. So, no politician is going to vote for that, and we plod along with the 1934 problem every year. Is this a great country, or what!