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Proposed Increase in Real Estate Transfer Taxes in Chicago

Talar Berberian Meghan Murphy April 16, 2024

Chicago Mayor Brandon Johnson made it clear both during his campaign and after he was inaugurated that increasing transfer taxes as a way to boost revenue for the City of Chicago without raising property taxes is among the first priorities for his administration. Since May, the Mayor has taken significant steps toward realizing this goal.

During his campaign, Johnson endorsed a “mansion tax” plan that was spearheaded by Bring Chicago Home, an activist group dedicated to fighting homelessness in Chicago. Then, the plan proposed a one-time transfer tax on all real estate transfers (of both residential and commercial properties) in the City of $1 million or more. On July 27, 2023, the City Council’s Committee on Housing held a subject matter hearing during which some aldermen proposed changes to the original Bring Chicago Home proposal. Former Department of Housing Commissioner, Marisa Novara indicated that a marginal tax may be a better choice because of challenges to a similar transfer tax hike in California based on the uniformity clause of the US Constitution. Some aldermen also expressed a concern about unintended impacts of the tax increase on “naturally occurring” affordable housing like 2-4 flat buildings whose values may be on the cusp of being subject to the tax.

As a reaction to these critiques and opposition from various other interests, the proposal was amended and Mayor Johnson, together with Alderman Carlos Ramirez-Rosa (35) and Alderwoman Maria Hadden (49) introduced a resolution proposing a referendum for a revised City transfer tax structured as follows:

  • Any sale up to $1,000,000 will be taxed at 0.6%
  • Any sale between $1,000,000 and $1,500,000 will be taxed at 2.0% on the amount over $1,000,000; and
  • For sales greater than $1,500,000 any amount over $1,500,000 will also be taxed at 3.0% for the amount above $1,500,000

The additional revenue generated from the proposed transfer tax would be allocated to the fight against homelessness and is viewed as a less regressive mechanism for generating income than increased property taxes. 

Process for Approving an Amended Real Estate Transfer Tax

Because the City Council cannot by itself modify the City’s transfer tax system, it must either seek to have the state legislature change the rules at that level or seek approval by a majority of Chicago’s voters in a referendum.  At this time, the next City election at which a referendum can be considered will be in March 2024. 

The City Council previously had an opportunity to advance the Bring Chicago Home tax during Lori Lightfoot’s term as mayor. While the resolution regarding a referendum for the original Bring Chicago Home proposal was initially introduced as Ordinance R2021-919 in July 2021, it ultimately failed to advance when only 25 Alderpeople were present at the City Council special meeting called to vote on the ordinance in November 2022. Mayor Lori Lightfoot, who did not support the plan at the time, quickly adjourned the meeting without a vote on the ordinance based on a failure to meet the 26-member requirement for a quorum, effectively killing the legislation.

Given the failure of R2021-919 last year, the revised Bring Chicago Home plan will now have to start the legislative process over before any proposed changes in transfer taxes advance to a referendum to be voted on by City residents. Referenda for approving changes to a real estate transfer tax for a home rule municipality in Illinois must be approved by a simple majority of the voters in a given election (65 ILCS 5/8-3-19(e)).

Similar “Mansion Taxes”

The neighboring City of Evanston, Illinois instituted a more modest mansion tax in 2019 after a city referendum saw 53% of voters approve the proposal. The tax there increased from the existing 0.5% to 0.7% on sales of greater than $1.5 million and to 0.9% on sales greater than $5 million. While Evanston saw a reduction in real estate transfer tax revenue in 2019 when the mansion tax was instituted, revenues have since rebounded and grown.

Los Angeles also recently enacted legislation increasing transfer taxes on both commercial and residential real estate sales. Similar to the Bring Home Chicago proposal, the revenue generated by the new tax in LA was intended to be used to fund affordable housing and tenant assistance programs. While the increased tax affects property transfers over $5 million, the city still saw an influx in home sales and an exodus from the city before the increase went into effect.  LA also experienced a freeze on lending related to construction and acquisitions.

In conclusion 

The proposed amendments to the current City of Chicago Transfer Tax have not yet been discussed at committee, though Alderman Carlos Ramirez-Rosa has indicated that there are enough votes to approve sending the resolution to referendum and Mayor Johnson has expressed his confidence that the matter will be voted on by the public next March. We will continue to monitor this matter as it progresses.

If you have any questions about the proposed increase in real estate transfer taxes, please contact Talar Berberian or Meghan Murphy.