A friend of McHenry County Blog offers this analysis of Woodstock’s rural tax rates:
These are the past 4 years of tax rates; that is, the percentage taken of 1/3 of the assessed fair market value of taxpayers’ homes.
Tax RATE for taxpayers is 1/3 of above figures; full tax rates are on EAV, and EAV is 1/3 of fair market value.
So for example, the individual tax rate for 2014 tax bill was 11.03/3=3.676%. That means that:
.03676 x (yourhomevalue)=(yourtaxbill)
Tax RATES are a function of 2 things:
- DOLLAR AMOUNT of taxes owed by property owner
- divided by ASSESSED FAIR MARKET VALUE of property.
As your home value SINKS, your tax RATE rises.
As the amount of money demanded by law to retain legal ownership of your home RISES, your tax RATE rises. [This will happen until tax districts bump up against their tax rate maximum limits, as the McHenry County Conservation District has.]
Tax RATES here have been rising to-and-at extraordinary RATES compared to other communities in Illinois and other States in the United States.
Tax RATES are a good way to compare what homeowners are required to pay in order to retain legal ownership of their homes in different communities in Illinois, or in different States of the United States of America.
For example, California passed Prop 13 which limits tax RATES to 1% of assessed home value. (Go look at your own tax bill and compare what it would be if your tax RATE were maximum 1 %!!!)
Rate rises have been
- 2011 – 13.59%
- 2012 – 16.82%
- 2013 – 11.86%
Rate of rate rise between 2014-2015 will be published soon.
Let us extrapolate the chart to guess what our tax RATE might be in the near future.
Because tax RATES have risen at well above 10% per year for the period of 2011-2014, we may assume they will continue to do so.
Tax LEVY (amount demanded by taxing bodies) has not decreased, and home values have steadily fallen.
Tax levy will not fall until expenses are cut, and local taxing bodies have been praising themselves just for holding INCREASES at what they consider ‘low rates’.
It is safe to assume that taxing bodies do not have intention to cut expenses.
Rising home values would lower tax RATES (because tax RATE= tax AMOUNT divided by home value.
Increasing the denominator lowers RATE).There is a theory that home values might increase.
Why should that happen? When homes can be bought all over America where tax rates are 1.4% average, and NOT rising at over 10% per year, why would buyers bid up homes in this County?
As rental property investors are increasingly the only willing buyers for homes in our County (at 4% tax rate), and investors aggressively seek downward revisions in assessments, the EAV must continue to fall.
Rental property investors seek returns in excess of costs, and costs may be shorthanded as:
Mortgage interest rate plus property tax.
Now, that is roughly 4% plus 4% which equals 8%.
That means an investor buyer of a $200,000 housing unit must get .08 x $200,000=$16,000 per year ($1333 per month) rent.
We are about there now in this area, so if mortgage rates rise, or as tax rate continue to escalate, even investors paying cash for homes at foreclosure prices will not be interested buyers.
The chart above shows that if local taxing bodies manage to lower tax levy increases in conjunction with a slower rate of home price decline to be only 10% rising rates per year, our property tax RATES will exceed 10% of our home value within 10 years (Remember, the Full tax Rate divided by 3 is homeowners’ property tax rate).
We have the first 4 years of known data reflected on this chart.
For example, on a $200,000 home, a 10% tax RATE would mean an annual tax bill of $20,000. (In California, with a tax RATE cap of 1%, a $200,000 home is only taxed at maximum of $2000).
10% tax rate will probably be achieved by crashing home prices (a $200,000 home now paying a 4% tax rate ($8000) crashing in price to $80,000 would pay the same $8000 taxes, but at a tax rate of 10% rather than 4%).
Two ways to lower tax RATE:
- spend less
- raise home values.
As is it seem impossible to raise home values while tax RATES are nearly three time the national average rate, only decreased spending will arrest the death spiral for our home values.
(Commercial real estate is different; see examples of prices paid for real estate on Randall Road, and research TIF [Tax Increment Financing] tax dollar giveaways by County/Municipal officials to understand why commercial real estate holds its value. The real estate which is doomed is the real estate which pays most of the property taxes.)