How Astonishing Property Tax Rates Hurt Home Ownership

property tax

Homeowners all over the Chicagoland area received their annual bad news in the mail this week in the form of their property tax bill.

For the past twenty years I’ve lived in Glen Ellyn, a small town with very little help from business sales tax to help pay for our schools, park district and other government services. This burdens property owners with an even greater tax bill relative to their home value.

One rule of thumb is that property taxes average about 2% of the value of your home. Using that figure a $400,000 home comes with an $8,000 tax bill per year.  If you put $100,000 as a down payment and finance $300,000 of that value with a 4% 30-year loan, you end up with a principal and interest payment of $1,432/month.

Over those 30 years, you would pay $515,608 to the lender, of which $215,608 is interest (tax deductible).  You pay another $240,000 (30 years x $8,000/year) in property tax (tax deductible). The sub-total cost of ownership of the $400,000 house you purchased is $855,608!

Was it really worth it?

From a financial perspective, you would need to factor in:

  • the home’s likely appreciation (total unknown)
  • the enjoyment factor from owning home (hard to measure)
  • the other related costs to home ownership; insurance, utilities, maintenance, etc.

Like most of my readers, I have always been on the side of home ownership and while I look forward to paying my mortgage off (12 years to go), I am cringing at the thought of my future property tax bills; especially when I think about the significant six figure total I will be paying over the next dozen years and beyond.  I wonder if I would be better off renting (or buying where tax rates are much lower) and saving the property tax money and other related costs, especially after my kids move on.

For retirement planning purposes, it is intriguing to consider moving to another state just for the property tax savings.  I ponder what I could do with all the money I give to the county just so I can have the privilege of living where I do and owning my home.

Your thoughts……….

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5 Comments

  1. Great commentary Brad and everyone in Glen Ellyn asks the same question; it’s often a top topic at Social Gatherings.
    The related question is what happens to the state income tax, presently at bargain at 3.75% . The good news is this LLW rate is a hedge to the high property tax. The bad news is Illinois is dire financial trouble. We need your help to solve this for our state!
    Thank you.

  2. 2 years ago our tax bill went from $7,200 to $10,500, so in 10 years time I’m going to pay more than $100,000 to basically rent the land my house is on. I seriously asked why do I live here (and figure in our winters, too)? When that tax bill came I got on the internet and started looking for other places to live. I did a survey and Louisville (a place I’ve never been to) was the top choice they gave me. I was ready to pay it a visit. I’d like to make that big decision sooner rather than later cuz I’m sure it’s get tougher as our young kids get older, but my wife doesn’t want to move to a place where we don’t know anyone, so I guess my decision has been made already.

  3. When you look at the figures you can understand why many seniors are struggling when their house is paid off and their taxes keep going up.Maybe more of us should rent instead of downsizing.

  4. Rental in the same community that you consider purchasing and raising your family is likely not a lower cost option. The landlord will need to be paying those same ‘high’ taxes, and necessarily passing on the cost as a portion of your rent. Most counties in Illinois are currently cheaper to own than rent given the market price of rent versus piti. (Principal Interest Taxes , and Insurance). The solution to lower housing cost is to move out of high tax communities. This is often done once the need for the excellent schools those high property taxes provide are no longer a necessity for your family.

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