Reducing Property Tax Uncertainty: Pre-Acquisition Planning

October 17, 2020 Real Estate Tax

Commercial property owners must consider a variety of issues when analyzing their potential return on an investment. While acquisition costs and financing terms often take center stage, it is critical not to overlook the potential impact of property taxes. This is a serious problem, as fluctuations in property taxes can have a significant impact on the economic health of an investment. Fortunately, with proper guidance, there are many ways to mitigate property tax liability associated with the purchase of commercial property.

5 Ways to Reduce Property Tax Uncertainty Prior to Acquisition

The process of reducing property tax begins before the acquisition of a property. Here are five ways to better understand and potentially reduce property tax liability in Illinois:

  1. Thoroughly Discuss the Property’s Historic and Planned Use With Your Attorney – Every investment presents different advantages and often unique challenges. It is critical to discuss both the historical and planned future use of the property with your attorney. Changes in physical characteristics, due to construction or renovation, may substantially impact your tax liability, as may changes in use and zoning. Similarly, changes in income and expense will also have a substantial impact on potential taxes. Without a complete understanding of the property’s past and expected future use, an investor sets themselves up for potentially unforseen and possibly catastrophic tax consequences. This risk can be substantially reduced by clearly communicating with your attorney.
  2. Review the Current Property Tax Assessment – It is imperative to review the subject’s current and historical property tax assessment during the due diligence phase. It is not uncommon to have a historic tax liability that is artificially low due to partial construction, vacancy, or other factors. Due to the fact that the foregoing relief typically lasts for a limited time, purchasers can be in for an unpleasant surprise when the subject’s valuation skyrockets to a “market” valuation. Additionally, prior assessments often provide insight into the Assessor’s historic valuation of properties in relation to the market, purchase price, and economic performance. Armed with this knowledge, prospective purchasers can get a clearer picture of how the acquisition target may be valued after its purchase.
  3. Assess the Availability of Tax Incentives and Exemptions – A variety of properties are eligible for property tax incentives and exemptions which can either eliminate or substantially reduce property taxes for a period of time. The eligibility of the foregoing requires a detailed understanding of the property’s usage, ownership structure, and the ability of the prospective owner(s), and potentially prospective tenants, to comply with a variety of State and Federal laws. Considering tax incentives frequently require the approval of local units of government, it is also crucial to discuss eligibility with a representative of the relevant unit of local government. A failure to investigate these options prior to purchase can result in missed opportunities that could have otherwise reduced property taxes for years to come.
  4. Carefully Structure the Financial Aspects of the Acquisition – In some cases, the financial structuring of an acquisition can impact a future property tax assessment. For example, purchases of other assets (such as personal or intangible property) in addition to the real estate, must be accurately apportioned in relation to the purchase price to avoid overstating the value of the real estate. Failure to properly allocate the real property’s true value could impair your future ability to obtain relief and could result in higher taxes.
  5. Generate Documentation that You Can Take to Court if Necessary – Finally, when going through the acquisition process, it is imperative to generate the documentation you will need to challenge the property’s tax assessment at the appropriate assessing authority (Assessor, Board of Review, P.T.A.B., Circuit Court) should it become necessary to do so. As a business owner, the last thing you want is to receive an unfavorable assessment and then lack the documentation required in order to prove that a reduced assessment is warranted.

Speak with Field and Goldberg, LLC Today

Our lawyers have been helping commercial property owners in Cook County and throughout Illinois reduce their tax burdens for twenty years. If you would like more information about our services, we invite you to call 312-408-7200 or contact us online to arrange an initial consultation.

Contact Us