The Illinois Disabled Veteran Real Estate Tax Exemption – A Great But Flawed Benefit

By Douglas Katz – 04/26/23

As an Army veteran and a experienced loan officer, I try and keep up to date on the benefits for my veteran and active duty clients.  In my home state of Illinois, the big one is the Disabled Veteran Real Estate Tax Exemption, which can benefit veterans with reduction or even elimination of their real estate taxes. In this article, we’ll discuss what the exemption is, who qualifies, and how to apply.  More importantly we will cover the dreaded cliff where even veterans with disability rating of 90% lose the benefit in its entirety.

What is the Disabled Veteran Real Estate Tax Exemption?

The Disabled Veteran Real Estate Tax Exemption is a tax benefit for disabled veterans who own their primary residence in Illinois. The exemption allows eligible veterans to reduce the assessed value of their property by up to $100,000, which in turn lowers their property tax bill.  This benefit varies in its administration based on county so it is essential to know where you are looking to fully assess your benefit.

Who qualifies for the exemption?

To qualify for the Disabled Veteran Real Estate Tax Exemption in Illinois, a veteran must meet the following criteria:

  1. The veteran must have served in the United States Armed Forces, the Illinois National Guard, or the United States Reserve Forces.
  2. The veteran must have received an honorable discharge or a general discharge under honorable conditions.
  3. The veteran must have a service-connected disability of at least 30%, as certified by the United States Department of Veterans Affairs (VA).
  4. The veteran must own and occupy the property as their primary residence.
How to apply for the exemption

To apply for the Disabled Veteran Real Estate Tax Exemption, the veteran must complete and submit the Illinois Department of Veterans Affairs (IDVA) form VSD-002. The form must be submitted to the county where the property is located. The veteran will also need to provide documentation of their service-connected disability from the VA.

It’s important to note that the exemption must be applied for each year. Once approved, the exemption will automatically renew for subsequent years as long as the veteran continues to meet the eligibility requirements.

EAV and The Cliff

What is not covered in enough detail and that is, therefore, not understood by man lenders and real estate agents is how Illinois determines the properties eligibility and the amount of the benefit.  This is all based on something called Equalized Assessed Value (EAV).  As covered in the introduction, the benefit basically allows eligible veterans to reduce the Equalized Assessed Value (EAV) of their primary residence by up to $100,000.  It’s important to note that the $100,000 exemption is not a blanket reduction for all veterans. Instead, the amount of the exemption is based on the veteran’s level of disability.  It is also imperative to always be aware of the cap and cliff which is triggered at higher EAVs.

To understand the how the benefit is applied to the EAV, let’s look at some examples.

  • If a disabled veteran’s home has an EAV of $200,000 and they qualify for the full $100,000 exemption, their EAV would be reduced to $100,000, resulting in a significant reduction in their property tax bill.
  • A veteran with a 50% service-connected disability would qualify for a $50,000 reduction in EAV
  • A veteran with a 70% disability would qualify for a $70,000 reduction.

This is all tempered by a limit in EAV of $250,000 at which point the benefit disappears completely unless you are in Cook County where there the cap is different.  Per my research this is based on the median value of homes in Cook County was viewed as generally higher than other counties in the state.  If you are somewhat perplexed at this part, I am not surprised.  It is hugely confusing, so here it is in a nutshell.

  • If you live outside of anywhere is IL that is not Cook County, the $250,000 EAV cap applies.  This means that even if a disabled veteran qualifies for the full exemption, will lose it entirely when their property hits the maximum EAV limit of $250,000.
  • If you live in Cook County, the limit is set at a higher level than in other counties in the state.  In short, there is no cap.  Your EAV could be three times the state limit and you would still retain the benefit.

This presents some issues. The benefit disappears for veterans not in Cook County at the point that their value increases above the EAV limit.  Too many buyers assume that the cap means that they pay the difference between the max benefit and there taxes above the $250,000 EAV. When they find out it could possible go from $0 to $15,0oo or more, they are gob smacked.  When this happens during the shopping and offer phase, they can adjust.  Sometimes it happens the knowledge comes after the fact to bad outcomes for the veterans and many choose to relocate out of state when that happens.

This problem would be less impactful if the EAV where periodically adjusted for economic factors like inflation and appreciation in the housing market, especially coming out of the last cycle that we have experienced.  The reality is that this law has not been adjusted for either of these since inception while other aspects of the state budget have.  Again, if this seems a little confusing, you are correct.  The taxes that you are paying have gone up, inflation has eroded the value of the dollar you use to pay them, the value of the home as defined by the EAV has gone up, but the cap by which the benefit is governed has stayed exactly the same.  Even the compensation for those whose job it is to oversee evaluate and manage the law have increased, but the exemption itself remains a snapshot from the time it was created. This one is especially difficult to explain to my veteran clients and their realtors and, if not addresses, it will surely get worse.

Conclusion

The Disabled Veteran Real Estate Tax Exemption is a valuable benefit for disabled veterans who own their primary residence in Illinois.  I have seen life changing results when a veteran is able to get the benefit, especially when coupled with a favorable finding by the VA for their rating around the same time.  Yes, I have seen in some of my refinances situations where a veteran saves over $20,000 annually when they claim the benefit.  As a real estate lending professional, I cannot stress how important that it is to be aware of the good, the bad and the ugly of this benefit so that you can ensure that you get the benefit and support you deserve.

WANT TO ENACT CHANGE?

To date, my efforts for dialogue with the people who can fix this have been met with “it’s too hard to fix.” at best and NO RESPONSE at worst.  If you think this benefit can be improved, you can help and in doing so, help our veterans.

I created a petition to send to the governor and state government to compel change to realign this benefit with the factors that contribute to eligibility as well as some improvements, i.e. cap vs cap and cliff. 

SIGN THE PETITION

WANT TO SHARE THE LINK – PLEASE DO!

https://www.change.org/Update-and-Fix-the-Illinois-Disabled-Veteran-Real-Estate-Tax-Exemption

Additionally, write your state senator, state representative and the governor to let them know that is important and that not addressing this is hurting our disabled veterans.

Disclaimer: This article was created with the assistance of multiple ChatGPT AI language models and has been edited and refined by Douglas Katz. The information provided in this article is intended for general informational purposes only and should not be considered as professional or expert advice. The views expressed in this article are solely those of the author and do not necessarily represent the views of ChatGPT or OpenAI. Readers are advised to do their own research and consult with relevant experts before making any decisions based on the information provided in this article.