Let us make property tax incentives work for you.
Sandrick Law, a division of KSN, is one of the most experienced property tax incentive firms with the largest filings of property tax incentives in the area.
Because of our south Cook County location, we are extremely well versed in 6b and Class 8 property tax incentives. We have successfully completed the incentive process for numerous commercial/industrial developers and property owners. When you are contemplating new construction or purchasing a vacant building, these incentives can provide tremendous tax savings opportunities. However, there are strict time-sensitive guidelines that must be adhered to so you don’t lose a great opportunity to save significant property taxes.
Being current with changes in the property tax laws and intimately familiar with our clients’ real estate portfolios allows us to recognize opportunities to save substantial property tax dollars.
Know the incentive rules: Case Study 1
Situation - One of our clients owned a sizeable south suburban industrial facility. It had been sitting vacant for approximately 23 months when they were contacted by a neighboring business about leasing opportunities.
Sandrick’s Solution - We were current on the then recent changes to the Cook County Classification Ordinance that allowed for an owner to receive a Class 8 Tax Incentive on his property without change of ownership. When our client notified us of the potential new occupant, we advised him to hold off re-occupancy – in this case just two weeks – until the duration of vacancy had exceeded 24 continuous months.
Client’s Tax Savings - Our client received one of the first Class 8 Incentives for a building that did not change ownership. By deferring the lease signing by two weeks we were able to reduce the annual taxes by 60 percent.
Know the incentive rules: Case Study 2
Situation - A client contacted us after purchasing and occupying a south suburban restaurant building. Because the property had been vacant at the time of sale, the owner attempted to obtain a Class 8 Incentive on his own. If successful, this would have reduced the property taxes by 60 percent. Unfortunately, the owner did not fully understand the Class 8 process and did not properly follow the procedures and statutes that govern obtaining a Class 8 Tax Incentive. The owner only received a Class 8 Incentive for the parking lot improvements he made, but not for the restaurant building.
Sandrick’s Solution - We encourage clients to call us prior to purchasing or leasing property to ensure that all opportunities to reduce future taxes are explored. Conversely, we have identified numerous potential property tax pitfalls that our clients have avoided.
Client’s Tax Savings - Unfortunately, this owner only received a Class 8 Incentive for the minor improvements to the parking lot under the heading of “substantial rehabilitation.” As a result, the owner has forgone significant Class 8 Incentive tax savings that could have been obtained for the entire building.
Know the incentive rules: Case Study 3
Situation - A client was in the process of purchasing an office building that was in foreclosure. The property owner was a major national lending institution. At the time of sale, the tax liability was approximately $115,000.
Sandrick’s Solution - We identified several opportunities, including obtaining a Class 8 Tax Incentive and anticipated a substantial reduced future tax bill based on both the Class 8 Incentive and the purchase price.
Client’s Tax Savings - After our appeal, the taxes were reduced to approximately $17,000. As a result of our analysis, our client received a Class 8 Incentive benefit AND a generous tax credit for the year of purchase. This could only be accomplished because we were able to act on behalf of the client prior to his purchasing the property.
New Changes = New Opportunities
The Cook County Board of Commissioners recently amended the Cook County Real Estate Classification Ordinance to expand the 6b and Class 8 Property Tax Incentive Programs. These modifications might provide additional and significant tax relief to certain qualifying properties. But before we can recognize the importance of these changes, we need to recap the Class 6b and the Class 8 Incentive Programs prior to the Board’s actions.
How Do Incentives Work? - All commercial and industrial property in Cook County is assessed at 25% (Level of Assessment – LOA) of market value. Thus, property with a taxable market value of $400,000 would have an assessed valuation of $100,000 ($400,000 FMV x 25% LOA). Properties with a Class 6b or Class 8 designation are assessed at 10% of market value.
The Incentives have the practical effect of reducing a property’s proposed tax liability by 50% to 60%. The following illustrates the benefits of an Incentive Property:
Regular - Commercial or Industrial Property
- $400,000 Fair Market Value (FMV)
- X 25% Assessment Level (LOA)
- $100,000 Assessed Value
- X 2.8056 Cook County Multiplier/Equalizer
- X 10% Tax Rate (Example)
- $ 28,056 Property Tax Liability
Incentive - Class 6b or Class 8 Property
- $400,000 Fair Market Value (FMV)
- X 10% Assessment Level (LOA)
- $40,000 Assessed Value
- X 2.8056 Cook County Multiplier/Equalizer
- X 10% Tax Rate (Example)
- $ 11,222 Property Tax Liability
What’s the Current 6b and Class 8 Criteria? - The Class 6b and Class 8 Incentives for industrial properties are virtually identical. The two main differences between the two designations are:
1. Only industrial properties may qualify for a Class 6b Incentive, while a Class 8 can be either commercial or industrial.
2. Class 8 incentives are only available in the following townships: Bloom, Bremen, Calumet, Rich and Thornton, while 6b Incentives are available countywide.
Class 6b
- Industrial Only
- Available Countywide
- Initial 10 yrs. at 10% LOA, with a 2 yr. phase-out back to 25% LOA
- Renewable beginning in the 10th year of the Incentive
Class 8
- Industrial or Commercial
- Limited to Bloom, Bremen, Calumet, Rich and Thornton Townships
- Initial 10 yrs. at 10% LOA, with a 2 yr. phase-out back to 25% LOA
- Renewable beginning in the 10th year of the Incentive for both Commercial and Industrial properties
There are four avenues to qualify for an incentive:
- New construction, including the applicable portion of land thereon;
- Substantial rehabilitation of the existing property (It is very important to recognize that this only applies to the additional value as a result of the rehab. This incentive should be carefully explored before implementation);
- Purchase of a building that is vacant or “abandoned” at the time of closing (most common);
- Re-occupancy without change of ownership (vacancy period has been amended).
When are ‘Special Circumstances’ Required for 6b for Class 8 Incentives? - If a building was vacant more than 24 months prior to the purchase, only a local municipal resolution of support is required. If the subject was vacant less than 24 months before closing, the municipal resolution must indicate that there are “Special Circumstances” present to warrant the wavier of the 24-month vacancy requirement. Special Circumstances are not defined, but are property specific. Additionally, a second resolution of support from the Cook County Board of Commissioners is required when vacancy is less than 24 months.
The Cook County Board previously amended the Classification Ordinance to allow for a Class 6b or 8 Incentive without purchase if the building had been vacant more than 24 months. An owner whose building had been vacant for 24 continuous months could apply for a Class 6b or 8 Incentive based on the re-occupancy. This was in recognition of the increasing number of buildings that were empty for a prolonged period of time.
TEERM Program Further Reduces 24-month Vacancy Requirement - The new amendments to the Classification Ordinance further reduce this 24-month vacancy requirement. Under the Temporary Emergency Economic Recovery Modification Program (TEERM), property may now qualify for a Class 6b or Class 8 Incentive if a building had been vacant more than 12 months without change in ownership. A local municipal resolution is still required finding that “Special Circumstances” exist as well as a Resolution from the Cook County Board of Commissioners. This modification will now make it easier for building owners, particularly investment properties, to market vacant space.
SER Program can help
Another significant change to the Classification Ordinance is the newly created Sustainable Emergency Relief Program (SER). An industrial building may qualify for a 6b Incentive under this program if the owner can demonstrate the following:
- The building was occupied for 10 years by the same owner prior to the application;
- There is evidence of hardship, which will show that inclusion in the SER Program is necessary to maintain operations and employees; and
- Without SER designation, the business would not be economically viable causing the property to be in imminent risk of becoming vacant and unused.
Applicants under both the TEERM and SER Programs must obtain not only a Municipal Resolution showing “Special Circumstances” exist but also must obtain a second resolution from the Cook County Board. This is a one-time only program and applications must be received by November 30, 2018 for consideration. Unlike traditional 6b and Class 8 Incentives, 6b Incentives received under the SER or TEERM programs are not renewable.
The TEERM Program is available for both Class 6 industrial as well as Class 8 industrial and commercial properties. However, the SER Program is limited to 6b industrial buildings.
Sandrick Law Firm, a divison of KSN, is the largest law firm exclusively devoted to property tax and assessment law in the South Suburbs, and has successfully counseled clients in numerous 6b and Class 8 incentive cases.
