How Kaegi is cracking down on landlords with subtle tax tweaks

Third-generation small business owner Randy Jacklin was shocked when his latest Cook County property tax appraisals more than tripled.

His business Jack’s Inc. in Berwyn consists of a first-floor tool rental shop and showroom with a 1,700-square-foot apartment on the second floor. The property is divided into five tax parcels in the Cook County Assessor’s records.

During this taxing cycle, the initial taxable value for his four commercial parcels increased by an average of 265 percent. That’s set to translate into a tax bill that is several thousand dollars higher than in years past, public records show.

“If we get slapped with this, I won’t know which way to turn,” Jacklin said.

A subtle change in how Cook County Assessor Fritz Kaegi evaluates mixed-use properties caused the increased valuations.

Kaegi’s office is cracking down on the “apartment loophole” that allowed some buildings that were predominantly commercial be classified as residential — even in instances where there is one small, makeshift apartment in a building that is almost entirely commercial otherwise. 

Commercial buildings are assessed at a higher rate — 25 percent of their market value — than homes and midsize multifamily buildings, which are assessed at 10 percent of their market value. As a result, these mid sized mixed-use commercial buildings were benefiting from substantially lower property taxes than buildings considered purely commercial.

Now business owners like Jacklin are seeing at least some portion of their properties taxed on 25 percent of their value rather than 10 percent.

Jacklin was able to get the assessor to slightly lower his property’s taxable value, but the Cook County Board of Review denied deeper cuts. He is now taking his case to state tax appeal officials.

If his appeal is unsuccessful, he said budgeting for his property tax bill will be “unimaginable.”

The assessor’s office has sent letters to property owners stating that properties between 20,000 and 99,000 square feet with more than 35 percent of their total space dedicated to commercial use now have “split classifications.” Buildings split into multiple parcels will see some jump from the 10 percent assessment level to the 25 percent assessment level.

As the change hits Chicago this year, thousands of properties could be affected, based on data showing how many owners of this mixed-use asset class have appealed their taxes during recent reassessment years.

The assessor started rolling out the change that boosted such tax bills in the southern suburbs of Cook County last year. Now, Kaegi’s office is starting to hit Chicago landlords as it sets new tax values for the city this year and moves on to the northern suburbs in 2025.

“Some have seen their assessment quadruple,” said Patrick Hynes, the assessor for southwest suburban Lyons Township.

In that area, the number of properties with the mixed-use classification type the assessor is targeting dropped from 29 in 2022 to five last year as a result of the policy change — though not all the buildings underwent significant changes in how they’re used, meaning the drop was the result of the assessor’s new policy.

Property owners and township assessors offices haven’t been adequately informed of the plan, Hynes said.

“Commercial taxpayers need stability and predictability from our property tax system to thrive. We are not getting that with this administration. It is very frustrating,” Hynes said.

The policy change was made to ensure that midsize mixed-use properties contribute their fair share, Cook County Assessor’s Office spokesperson Christian Belanger said.

“We made this clarification to ensure equity in commercial assessments across Cook County,” Belanger’s statement said. “The split-code assessment helps the valuation of property to be more precise, ensuring more uniform assessments for all properties in Cook County.”

The change was spurred by recommendations in a 2022 report from the Cook County Office of the Independent Inspector General. It found that multiple assessor’s office employees were concerned about how some parcels got classified as residential at a substantial tax reduction, even if the property contained just one livable unit. Multiple employees called the practice a “loophole,” the Inspector General wrote.

“There are a lot of fairness problems here,” an assessor’s office manager told the inspector.

Another told the Inspector General that such property owners had been “gaming the system.”

Now, in some cases, almost an entire property can be classified as commercial even when it includes a residential component.

That’s what happened to a historic Riverside property known as the Arcade Building at 1 Riverside Road. The property is not divided into multiple parcels but has ground floor commercial spaces and residential space on the second floor. Due to the overall size of the property and the proportion of commercial to residential space within the building, it was classified as nearly fully commercial in 2023.

As a result, the property’s taxable value increased by 145 percent.

But the property owner, a trust established by the late Giuseppe Zappani, who restored the formerly distressed building, found relief from the Cook County Board of Review. An appeal to the board brought the property’s taxable value down from $565,000 to $183,000, or much closer to when it was considered a fully residential property the year prior. In 2022, its taxable value was $123,000.

As the policy change rolls into the city of Chicago, the Board of Review will likely see a surge of similar appeals. It’s unclear how many will be successful.

Editor’s note: This story has been updated to clarify 1 Riverside Road’s assessment classification.

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