Will proposed 'Mansion Tax' burden middle-class owners?

The so-called "Mansion Tax" really is a Robin-hood style plan to steal from the rich to give to the poor, conservatives say. however, it could also hurt the city's middle-class property owners.

Mayor Brandon Johnson's proposal to more than triple the transfer tax that buyers of residential or commercial properties priced at $1 million or more could eventually backfire to actually reduce the city's affordable housing stock.

Thousands of North Side two-, three-and four-unit apartment buildings are owned by "Ma and Pa" middle-class people and senior citizens, who frequently charge under-market affordable rents. While a growing number of those properties may be valued at more than $1-million, the buildings really represent the middleclass owner's retirement nest egg. and in time, won't just about all North Side be properties be worth a million or more? They will if real estate values continue to grow and inflation casts its magic.

although the proposed tax would be paid by the buyer, essentially it could lower the seller's sale price by tens of thousands of dollars.

Dubbed the "Mansion Tax," the Johnson proposal would hike the buyer's transfer tax on a $1-million property to 2.65%-or a hefty $26, 500-from the current $7, 500, which is.075% of the sale price.

Essentially, this means the city would be taxing elderly and middle-class owners of $1-million properties $26, 500 off the top. Closing the sale at a lower price would slash the seller's retirement nest egg. it is likely that the new owner would ask double-digit rent increases to make up for the luxury tax hit, and that is the exact opposite of what Mayor Johnson wants.

The luxury tax would translate into buyers of $1-million properties having to pay $13.25 for every $500 in sales value, up from the current $3.75 in value. The $3, 000 transfer tax sellers now pay per $1 million would not change under the current proposal.

The buyer's tax bite would grow incrementally the more expensive the home or building. For example, if the sale price were $1.5 million, the transfer tax would jump to $39, 750 from the current $11, 250. The buyer of a $2-million mansion would pay a whopping $53, 000, up from the current $15, 000.

"Values of $1-million-plus properties already have dropped 10% to $30% this year," noted Jim Kinney, former president of the illinois Realtors association and a veteran gold Coast broker for Baird & Warner.

The illinois assoc. of Realtors, a trade association that represents agents across the state, believes that the luxury tax would further lower prices and reduce volume in the high-end market.

Upscale lakefront neighborhoods-such as the gold Coast, Near North Side, Lincoln Park, old Town, Lakeview and Edgewater-likely would suffer losses in value if the luxury tax is enacted.

Under Mayor Johnson's "Bring Chicago home" proposal, 100% of an estimated $163 million in additional buyer taxes reportedly would be earmarked for the fight against homelessness over 12 months.

That's on top of the roughly $62.6 million in annual transfer taxes $1-million-plus sales actually pumped into city coffers under the existing tax structure in the past year.

Mayor Johnson's team has signaled it no longer will seek to enact its luxury tax proposal as a state law through the illinois general assembly. instead, Mayor Johnson's goal is for the luxury tax to be approved by the Chicago City Council this fall.

Then, in 2024 the proposal would be placed on the ballot for a voter referendum on the March, Presidential primary ballot. So, the earliest the luxury tax could go into effect is spring of 2024. ald. Nicole Lee (11th Ward) told the Chicago Tribune she is urging City Council members to ensure that the tax would not apply to the sale of multiunit apartment buildings with affordable rentals. "i want to make sure that we're not inadvertently causing a reduction in naturally occurring affordable housing with this transfer tax," Lee said.

Kinney believes buyers will ask: What does the Mansion Tax do to my choices? a buyer either pays the tax in the city or moves to a North Shore suburb where there is no Mansion Tax and the schools are infinitely better.

"high taxes and crime already are causing people to vote with their feet. Some 60, 000 people have left illinois in recent years," Kinney said.

if the City Council passes the Mansion Tax proposal, and it is approved via referendum next spring, experts say Cook County assessor Fritz Kaegi may have to institute a new model for assessing $1-million-plus homes to compensate for falling market values and the hefty burden of the added layer of taxes.

a recent count showed there are 6, 139 homeless people in Chicago, according to the Department of Family and Support Services. That number includes 2, 196 migrants. The U.S. Dept. of housing and Urban Development estimates Chicago's homeless population is closer to 5, 300.

obviously, these totals do not include the thousands of asylumseekers shipped to Chicago from Texas and now living temporarily in Chicago police stations, schools, Park Dist. field houses, on the Wright Junior College campus and in motels. The Broadway armory Park Fieldhouse at 5917 N. Broadway in Edgewater also has been named a new immigrant haven. For more housing news, visit www.dondebat.biz. Don DeBat is co-author of "Escaping Condo Jail," the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.