The Homestead Exemption for Veterans with Disabilities – What You Need To Know.

By Douglas Katz – 06/27/2022

  • Veterans in Illinois can save up to 100% of their real estate taxes.
  • Savings depend on their disability rating and the county.
  • Caps and different policies can drastically change the benefit for different situations.
  • Some veterans either lose it soon after getting it or do not even get it as expected due to some important considerations.

Did you know that service disabled veterans in Illinois with over 30% rating are partially or even fully exempt from real estate taxes?  It is a great program, but not without its flaws. Before buying, any disabled veteran to whom this applies should know the specifics, because an error can be costly.  While I try to cover broader issues with broader geographical relevance, this program, specific to my home market, is one that needs clarification as I get a ton of questions regularly on this program and the degree of confusion can be considerable.

As specifically written:

The Standard Homestead Exemption for Veterans with Disabilities (35 ILCS 200/15- 169) exemption benefits will significantly increase for a veteran with a service connected disability of at least 30% (previously 50%) or greater, as certified by the United States Department of Veterans Affairs. This annual exemption provides a reduction in the equalized assessed value based on the veteran’s service-connected disability for the veteran’s primary residence or their surviving spouse’s primary residence.

The benefits for this exemption will increase as follows:

  • Veterans or surviving spouses of veterans with at least 30% service-connected disability, but less than 50%, will receive a $2,500 annual exemption (reduction to equalized assessed value (EAV)).
  • Veterans or surviving spouses of veterans with a service-connected disability of 50%, but less than 70%, will receive a $5,000 annual exemption (reduction to EAV).
  • Veterans or surviving spouses of veterans with a service-connected disability of 70% or more will be exempt from paying property taxes on their primary residences (100% reduction in EAV).
  • Surviving spouses of veterans who are killed in the line of duty will receive additional property tax relief to assist families in maintaining their homes. A 100% reduction to the EAV on the primary residence will be available for surviving spouses of veterans who are killed in the line of duty.

Seems simple, right?  It is actually less so than you would think.  What is not reflected in the verbiage is the cap.  There is a cap of $250,000 assessed value that limits the benefit.  This means that when your value exceeds that $250,o00 assessed value, your benefit goes to $0.  It is a cliff where one year you pay nothing but subsequent years you are hit with a full tax bill regardless of disability rating.  To make things even more confusing, different counties interpret the law differently making it harder to manage.  Cook County, for example does not adhere to the cap while most others in the greater Chicago metro area do.  As you can guess, this means some confusion for buyers, especially when they THINK that they will have the benefit and either don’t or they lose it soon after buying.

Also, each county looks at when the benefit kicks in differently.  All based the initial benefit on the date of close, but some have a waiting period after closing, i.e. 30 days, before it is applied.  For example, if you close on a home in McHenry County in June, August would be the first month that your benefit applies.  In situations where you already own the home and just received a rating, some will prorate based on the day you close while others, like Cook County, follow a 1 day = 360 day approach.  This means if you are a homeowner in Cook County and you get notification on your rating on December 5th, you will get the benefit for the while year.  Other counties do not necessarily work that way.

Now you can see how this gets confusing, but here are some tips.

  1. Plan ahead – If you are a disabled veteran OR are a veteran waiting on a rating, research the county or counties that you are considering.  A simple call to the County Offices, either the assessor or the veteran assistance office should get you the details and specific for that county.  You can get information on anything from caps to effective date of the benefit before entering into a deal.  You can also get your documentation in order to make application simpler.  You do not want to be sorting through boxes to get this done after moving in.
  2. Pick the right team – While nothing replaces your own research, having a team well versed in the veteran community for Illinois helps.  As a service disabled veteran with personal knowledge and experience on the program, I, for instance, can and have helped many veterans understand this benefit early in the game.  When the buyer is looking in the higher brackets, they sometimes choose location for the benefit, i.e. staying in Cook County, so that they maximize the impact.
  3. Understand the impact on your loan – There is a common misconception that the payment for the loan approval will reflect this benefit.  To be blunt, it won’t.  Most if not all lenders are not well versed in this and, even if they are, they will not be willing to apply the benefit until you can show the tax bill reflecting the benefit.  Remember, taxes are paid in arrears so you will not even see the benefit until the year after you buy.  For this reason, expect that you will see taxes on your application and accompanying documentation.
  4. Remember to renew – While execution of the benefit is different in each county, the requirement to renew annually is not.  The county and state need to verify that your rating has not changed so expect to provide your Proof of Disability annually.  You can easily print this from the VA website, so it is simple but many people forget.  You will get a reminder in the mail, but remember to action it promptly.
  5. Be patient – The first filing will likely involve refunds and reimbursements from the county and your lender.  In Illinois, where taxes are high, this can be a lot of money.  Both servicers and the state are sometimes slow and bureaucratic.  Accept it and set a reasonable expectation for when everything will be correct.  This also applies to your payment reflecting the new payment, so when you are dealing with your servicer, just expect a longer timeline that you would like.
  6. Know the changes to the benefit for your loved ones if you die – There is no better way to put it.  We are mortal and we all eventually shed the mortal coil.  This has an impact on those we leave behind, to include with this benefit.  In many cases, a spouse of a disabled veteran gets the benefit until they move, but mileage may vary.  The same way that you would plan from an insurance perspective, you need to plan for this.  If it changes or your assumptions are wrong, it could mean disaster especially for those on a fixed income.  Also, make sure any potential survivor knows the process for renewal and the deadlines.
  7. Understand the benefit if you vacate the home – I am mostly talking about divorce here, but it can apply also if you move and retain the home.  In the even of a divorce, your attorney and other players on your team of divorce professionals need to know that this will only stay in place if this is your residence.  Most counties require that you revalidate the status as a primary residence.  If you have moved, your ex will likely have the full tax liability.  Same goes if you move, even if a VA loan remains in place.  If the property is not your primary residence, you do not get the benefit.
  8. If you have not already, explore your possible disability rating – I speak with many veterans who have not explored service related disability regardless of their health or physical condition.  To me, that is crazy, but once they understand that they are not “getting over” or “playing the system,” they see it that way too. Many feel that they need to be tough as they hobble around on bad knees or ankles or they suffer other service related maladies for which they should be compensated.  Believe me when I tell you that they VA will not rate someone without full review and due diligence.  Leave the decision to them and apply, preferably using a veteran service officer’s assistance.  They are a free service from veteran groups like The American Legion and they are equipped to assist.  While you may not reach the 70% for full exemption, you may get enough for a little help AND any rating gets you a VA Funding Fee waiver which will save you money.

As you can see, this is a tremendous benefit.  It provides amazing real estate tax relief for many veterans in Illinois, but it us also very confusing and inconsistent in execution.  A deliberate approach and the full understanding of how the benefit is applied in the geographical area or areas that interest you can and will pay dividends and ensure that you end up in the situation that you expect.

If you want to know more about VA Disability, check out a recent discussion that I moderated with guest Mike Iwanicki, the Superintendent for the McHenry County Veterans Assistance Commission, for OnTime Mortgage.  He has forgotten more about the VA system than I can ever hope to learn.

Here is a key to the concepts covered:

  • 0:00 – Beginning
  • 1:00 – Intro and Agenda
  • 1:41 – Mike Iwanicki’s Bio
  • 3:16 – VA Benefits vs VA Healthcare
  • 4:30 – Can Treatment Reduce Rating?
  • 6:50 – VA Rating System
  • 10:00 – VA Math
  • 10:50 – Permanent and Total 100% Rating
  • 16:00 – TDIU
  • 17:30 – 1151: What to Know
  • 19:00 – VA Pension
  • 20:30 -Other Considerations
  • 21:43 – IL Real Estate Exemption
  • 25:00 – ALS and VA
  • 27:30 – Why you need a VSO
  • 30:45 – Service Connection
  • 36:45 – Changes and Possible Reconsideration
  • 40:00 – Agent Orange
  • 42:30 – Tinnitus
  • 44:00 – Overall Advice
  • 46:00 – VSO vs Private Legal Representation
  • 46:30 – Advice and Strategy for Active Duty