What there is to know
- The “mansion tax” will be put before all Chicago voters in the March primaries.
- Supporters say $100 million could be raised to fight homelessness
- Critics say the measure would have a chilling effect on commercial real estate sales.
Voters in the city of Chicago will be offered a referendum on their ballots in the 2024 primary election, asking whether they approve of a so-called “real property tax” that would fundamentally change the way real estate transfers are taxed in the city.
According to the language of the referendumVoters will decide whether the city should move from the current flat real estate transfer tax model to a progressive tax, which would impact all transactions of $1 million or more.
Supporters say the ordinance would result in reduced transfer taxes for about 94 percent of the city’s properties, but critics warn it could have a devastating impact on the commercial real estate market.
If a majority of voters support the referendum, the Chicago City Council would be required to evaluate and adopt the ordinance in the spring, according to the bill’s supporters.
So, what exactly would changing transfer taxes entail?
Currently, real estate transfers in Chicago are taxed at a rate of $3.75 for every $500 of the purchase price.
The proposed tax structure would reduce that tax to $3 for every $500 of the transfer price, provided the property is sold for less than $1 million. This represents a reduction of 20%.
An increased rate would then be applied to the property value between $1 million and $1.5 million, with those funds taxed at a rate of $10 for every $500 of purchase price. This would represent a 233% increase over the current rate.
For any value greater than $1.5 million, transfer taxes would be increased to $15 for each $500 of value, an increase of 400%.
According to the referendum text, funds generated from the tax increase would be directed to initiatives aimed at combating homelessness in the city.
“Revenues from this increase shall be used for the purpose of combating homelessness, including providing permanent affordable housing and the services necessary to obtain and maintain permanent housing in the City of Chicago,” reads the text of the referendum.
Under the transfer tax provisions, these rates would be paid by the purchaser of the real property, unless the purchaser is exempt from the tax under state law. In these cases, the tax would be paid by the seller.
Supporters of the ordinance say the tax would generate $100 million a year.
Nearly 94% of properties sold in Chicago would qualify for a tax break because they are valued at less than $1 million, according to to officials cited by WTTW Chicago.
The proposal would also exempt developments intended for affordable housing, according to officials.
The funds would be used to build permanent housing that will include substance abuse counseling and other comprehensive services, according to supporters.
“The average home buyer will see a reduction in the amount they have to spend on real estate transfer taxes as a result of this change,” said Ald. Carlos Ramirez-Rosa told Block Club Chicago. “But we’re also asking the top executives in the market, some of the biggest companies in the world, to pay a little more when they buy property in the city of Chicago.”
Critics of the tax increase say it would have a devastating impact on commercial property sales, as those owners are already feeling the impacts of more businesses having employees working from home, reducing overhead and occupancy rates. according to LP Legal.
According to Crain’s Chicago Business, commercial real estate transactions in Chicago totaled approximately $5.3 billion in the first half of 2023, a 51% reduction from the previous year.
Paul Vallas, former Chicago mayoral candidate, writing on behalf of the conservative-leaning Illinois Policy Institutecriticized the measure for its disproportionate impact on commercial properties and warned that the measure could result in lower-than-expected revenues due to declining commercial occupancy in Chicago, which would then impact property valuations.
Lawsuits were filed claiming the referendum was too vague, according to to real estate publication The Real Deal. Plaintiffs in the lawsuits argue that the city would not be adequately required to spend those funds on affordable housing and other efforts to combat homelessness.
The National Association of Realtors also spoke out against the proposed ordinance, saying the impacts on business operations will ultimately affect property owners as the city works to deal with possible shortfalls in funding.