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Court Rules Homestead Tax Exemption Applies to Lease Agreements

Property Tax Publications

An Illinois Appellate Court recently ruled that the general homestead exemption applies to a couple leasing a single-family home. In Shrake v. The Rock Island Treasurer, the Court determined the couple, as leaseholders, were entitled to the general homestead exemption because the couple was responsible for paying the property taxes under the express terms of the lease.

Kevin and Jill Shrake signed a multiyear lease and option to purchase agreement for a single-family home in Moline, Illinois. The agreement provided the Shrakes were liable for real estate taxes and outlined several requirements for the tax liability. Specifically, the agreement called for the Shrakes to pay property taxes through their monthly rent, as extra charges added onto their base rent amount. The bank, then, would pay the county the balance due on the property taxes out of the extra charges.The Shrakes filed a notarized application with the assessment office in Rock Island to receive the general homestead exemption for the 2015 real property taxes. In September 2015, the Shrakes were notified their application had been denied because their lease did not require direct payment to the county collector, as required by statute. 

The Appellate Court sided with the Shrakes. Under Section 15-175 of the Property Tax Code, lessees of residential property are entitled to a homeowner’s exemption so long as four conditions are met, most importantly that the lease expressly states the lessee is liable for payment of the property taxes. The Court looked at the plain language of the statute and concluded that nothing in the statute required the property taxes to be paid directly to the county. They also concluded that local officials cannot add requirements for the exemption not contained in the plain language of the statute.

Every year, considerable sums of money are refunded for homeowner exemptions through the certificate of error process, usually because the homeowner failed to properly apply for the exemption. While no single refund of this type is very large, the cumulative impact of these refunds can impact school district property tax collection rates. Additionally, every property tax exemption has the larger tax policy effect of shifting the tax burden between different property types. Thus, while this decision may not have an immediate or drastic fiscal impact on school districts, school districts are wise to keep issues such as this in mind when preparing budgets and tax levies.