With the start of tax season now just days away, home improvement experts say the cost of home improvements could climb significantly after the state passed a $500 billion property tax increase.
The Wall Street Review reported Thursday that estimates of the tax bill’s impact on home improvement projects were not yet available.
State officials and real estate experts say they are cautiously optimistic about the measure’s potential to spur new home building.
“The tax is a huge lift,” said Paul Cusick, president of Cusill Associates, a real estate research firm.
Home improvements have historically been a large part of the state’s economy, and the tax is the first time the state has done so.
The tax was introduced by Republican Gov.
Bruce Rauner, who had promised to make the tax revenue streams more efficient, even though he has called the tax hike a “mistake” for the state.
According to the Wall Street review, the tax will raise $1.3 billion in state revenue in 2027.
The review estimated the tax increase would raise $200 million annually, which is about half of what is projected to come from the sales tax.
The new sales tax is projected at $8.6 billion.
Homeowners will still have to pay a new property tax of $2,200 for every $1,000 of income.
They will also pay an additional $350 per month for the first three years of the new tax, which will expire in 2029.
They could pay $2.25 more per month on their property tax bill over the next three years if they pay a lower percentage of their income in property taxes.
The tax also provides for a new surtax on high-value homes, which some economists say is a good idea to make up for the revenue lost from higher home values.
However, many homeowners will probably choose to keep their homes instead of buying a new one, said David Mankiw, an economist with the nonpartisan Tax Policy Center.
The Tax Policy Council estimated that the new sales and property taxes would generate $3.5 billion a year in additional tax revenue.
However, experts said the new revenue will likely not be enough to cover the projected increases in the costs of housing, such as maintenance and upkeep, and other services, such a roads and water.
The Tax Policy Coalition, a Washington, D.C.-based nonprofit, estimated that average home prices would increase by 0.5 percent over the first two years of tax-increase implementation.
Home improvement projects that are financed through the tax include refinancing loans for properties, home improvements that include remodeling and repairs, and repairs that include replacing worn or damaged appliances.
The increase in the tax also will raise the costs for utilities.
For homeowners who purchase a home for less than $1 million, they will have to take a $1 monthly surcharge on their next property tax payment, a $250 fee for property tax increases over $1 billion and a $200 fee for an increase in property tax bills that exceeds $1 trillion.