Chicago property taxes can feel confusing, especially because Cook County taxes are paid in arrears. That means the taxes for one year are actually paid the following year.
Here’s the simple version of what buyers and sellers need to know.
When Are Chicago Property Taxes Paid?
Cook County property taxes are typically paid in two installments each year.
Because they are paid in arrears, a homeowner may sell a property before all taxes for their ownership have been billed.
That’s where tax prorations come in.
What Is a Tax Proration?
At closing, the seller generally gives the buyer a credit for the property taxes covering the time the seller owned the home but that have not yet been paid.
The buyer then assumes responsibility for future tax bills.
The credit is usually based on the most recent available tax bill and an agreed-upon proration percentage. Since taxes can increase, the contract may use slightly more than 100% of the previous bill, typically between 105% and 110%.
Your attorney or real estate agent will negotiate what is fair for their client at the time of the contract and negotiations.
Do Property Taxes Transfer to the Buyer?
Not exactly.
The tax bill stays with the property, but the seller and buyer divide responsibility through the closing statement.
The seller receives less in proceeds because of the tax credit, and the buyer receives that credit to help cover taxes due after closing.
How Does Escrow Work?
If you have a mortgage, your lender may collect property taxes as part of your monthly payment.
That money is placed into an escrow account, and the lender uses it to pay the tax bills when they come due.
So instead of paying a large tax bill twice a year, you are essentially setting aside a portion each month.
If you do not escrow taxes, you are responsible for paying the Cook County Treasurer directly. In our experience, more people escrow taxes than not.
What Happens to the Seller’s Escrow Account?
The seller’s existing escrow account does not transfer to the buyer.
After the seller’s mortgage is paid off, the mortgage company generally refunds any remaining escrow balance directly to the seller.
The buyer starts their own escrow account with their lender, if applicable.
What About Property Tax Exemptions?
Buyers should also pay attention to exemptions.
The current owner may have a Homeowner, Senior or other exemption that the new buyer may not qualify for.
Because of that, the tax bill shown on a listing is helpful, but it should not always be assumed to be exactly what the new owner will pay going forward.
The Bottom Line
The easiest way to think about Chicago property taxes is this:
Taxes are paid after they are incurred; the seller credits the buyer for their unpaid portion at closing, and the buyer becomes responsible for future bills.
If the buyer escrows taxes, their lender handles those payments going forward.
It may sound complicated at first, but this is something we deal with every day. Understanding the tax history, exemptions and estimated prorations before closing can help avoid surprises for both buyers and sellers.
This is general information only. Property tax prorations and closing terms vary, so buyers and sellers should always review their specific transaction with their real estate attorney and lender.
