If you own an apartment building, a strip of retail, a warehouse, or an office, the county did not value it the way it values a house. It did not pull three sales down the block and call it a day. It treated your building as what it actually is — a machine that produces income — and it ran that income through a formula. That formula has four or five inputs. **Every one of them is an assumption. And every assumption is a place the number can be set too high.**
This is the income approach. It is the method the State of Illinois trains its assessors to use on income-producing property, and once you can see the inputs, you can see exactly where an over-assessment hides — and where an appeal makes its case.
Quick Answer
The county values income property with the IRV formula — Income ÷ Rate = Value — built from assumed market rent, a vacancy deduction, an expense estimate, and a capitalization rate. Each input is an assumption that can be set too high. On commercial property, that work is done with your attorney at the Board of Review.
The Formula Underneath Your Bill: IRV
The Illinois Department of Revenue's assessor-training manual is blunt about it: "Commercial property is usually bought and sold on its ability to generate and maintain a stream of income for its owner." So that is how it gets valued. The State calls the engine the **IRV formula**, and it works in one line:
**Market value (V) = net income (I) ÷ capitalization rate (R)**
Cover any one letter and the other two solve for it. Divide income by the cap rate, and you get value. That single division is what stands behind the assessed value on your income property — which means a building's entire tax exposure rides on two numbers the county estimated: the income it assumes you make, and the rate it divides by. Get either one wrong on the high side, and the value comes out high. The State's own method, faithfully applied, can still produce an inflated number when the inputs are inflated.
So let's take the inputs apart, the way the manual teaches them.
Input 1 — The Rent the County *Assumes* You Get (Not What You Actually Get)
The income side starts with **Potential Gross Income (PGI)** — defined by the State as "the economic rent for a property at 100 percent occupancy, 100 percent of the time."
Read that twice. PGI is not your rent roll. The manual is explicit that PGI is built on **economic, or market rent** — "the rent of similar properties in the area" — and that this "may not be the same as contract rent," the rent you are actually receiving under your leases.
The training manual's own example: an owner leases one-bedroom units at $700 a month, but comparable units in the area lease at $800. The State instructs the assessor to use **$800** — the market figure — for PGI, "not the actual $700," because the owner "could be (potentially) receiving" it.
That is the first place the number runs high. **If the county's read of market rent is stale, optimistic, or pulled from a stronger submarket than yours, your PGI is overstated before a single deduction is taken** — and every downstream number is built on top of it. What the comparable buildings actually rent for, today, in your specific location and condition, is a factual question. It is exactly the kind of question an evidence-backed appeal is built to answer.
Input 2 — Vacancy and Collection Loss: the Discount You're Owed
No building runs full forever. The State requires a deduction for it. From the manual: "It is highly unlikely that a property will be rented to 100 percent capacity at all times, so a deduction for 'vacancy loss' is allowed." On top of that, **collection losses** — "losses that result from tenants' failure to pay rent" — get their own deduction. Both are taken as a percentage of PGI, "based on market standards, or the vacancy rate typical for the area."
Here is the leverage: vacancy is a *subtraction*. The bigger and more honest it is, the lower your income — and the lower your value. **If the county applied a thin vacancy factor, or none, while your submarket actually runs softer, the assessment is carrying income the building never realistically collects.** "At least some vacancy is to be expected for the repair and maintenance downtime between tenants," the manual notes. A vacancy assumption that ignores your real market is a number worth contesting.
Input 3 — Expenses, and What the County Refuses to Count
After miscellaneous income (laundry, vending, parking, storage — the manual lists them) is added to get **Effective Gross Income (EGI)**, the operating expenses come out. The State defines **allowable expenses** as "the expenses necessary for the operation of the business to keep it competitive with other properties in the area," and gives the list: salaries, utilities, management, insurance, supplies, materials, repairs, and maintenance. Then it subtracts **Reserves for Replacement** — the annual set-aside for items that wear out before the building does: "carpeting, floor coverings, roofing, appliances, heating, and air conditioning."
What's left is **Net Operating Income (NOI)** — the "I" that goes into the formula. The full chain, in the State's own order:
Potential Gross Income − Vacancy & collection losses + Miscellaneous income = **Effective Gross Income**
Effective Gross Income − Allowable Expenses − Reserves for Replacement = **Net Operating Income**
Now the catch that trips up owners. For assessment purposes, the State expressly **disallows** several real costs you actually pay: property taxes, **debt service (mortgage and interest)**, income taxes, depreciation, and capital improvements. Why exclude the mortgage? Because, the manual says, debt service is "taken into consideration in the capitalization rate." And taxes are excluded for the same reason — "taxes and interest are reflected in the capitalization rate."
That matters enormously, and we'll see why in a second. But the input-level point is this: **if the county lowballed your operating expenses — assumed your management, utilities, insurance, or reserves run leaner than they do — your NOI is overstated.** A thin expense estimate inflates income just as surely as an inflated rent does. Documented, market-typical operating expenses are the counterweight.
Input 4 — The Cap Rate, and the Tax Hidden Inside It
The last input is the **capitalization rate** — the "R" you divide by. Bigger R, smaller value. Smaller R, bigger value. So a cap rate set too *low* drives the assessed value *up*.
Here is what most owners never learn: the cap rate is not one number. The State teaches it as a stack. The **building capitalization rate**, per the manual, "is comprised of three rates":
- an **effective tax rate**,
- a **recapture rate** (the recovery of investment in a "wasting asset — one that becomes less valuable because it is used up"), and
- a **mortgage interest rate** (the rate "used to convert future payments into present value").
That first component is the quiet one. The **effective tax rate** is "determined by multiplying the level of assessment by the aggregate (total) tax rate supported by an individual property." In other words: **the property-tax burden itself is baked into the cap rate.** This is the structural reason the manual disallows property taxes and mortgage interest as line-item expenses — they are not ignored, they are loaded into R instead. (For bare, unimproved land — the manual's example is a gravel parking lot — there's no recapture rate, because land "does not generally depreciate or become used up." Pave that lot and it becomes improved, can depreciate, and all three rates apply.)
So the cap rate is a built object, assembled from a tax-rate component, a recapture component, and an interest component. **Each piece is an assumption. A cap rate built too low — a recapture rate that ignores your building's real remaining life, an interest component out of step with the market your asset actually trades in — pushes the value up.** Because the relationship is a division, even a small understatement of R can move the value materially. That's not a rounding error. That's the difference between a fair number and an inflated one.
Why the Stakes Are Bigger on a Commercial Parcel
Every dollar of overstated value hurts more on income property than on a home — by design. Cook County assesses a house (Class 2) at **10%** of market value. It assesses **commercial and industrial property (Class 5) at 25%** — a 2.5-to-1 ratio, the **25% level**. The same percentage error in the income approach therefore lands with two-and-a-half times the weight on your building before the **state equalization factor** (the 2024 final Cook multiplier was **3.0355**, per IDOR) and the local rate even apply.
An inflated assumption doesn't pass through the Cook County system. It gets multiplied by it. That is why the inputs are worth taking apart, parcel by parcel.
Where the Appeal Lives — and Why You Bring Counsel
Notice what the income approach is *not*. It is not a mood, not a complaint that the bill feels high. It is a chain of four specific, factual, contestable assumptions:
- **Market rent** the county assumed (vs. what comparables actually rent for).
- **Vacancy and collection loss** the county applied (vs. your real submarket).
- **Operating expenses** the county estimated (vs. your documented, market-typical costs).
- **The capitalization rate** the county built (and the components inside it).
An appeal on income property is the disciplined version of that audit — the income statement reconstructed on the record, the cap rate rebuilt, the assumptions met with evidence. **It is not a do-it-yourself project.** Income property is almost always held in an entity — an LLC, a corporation, a trust, a condo association — and in Illinois, an entity cannot represent itself at the Board of Review. It must appear through a licensed attorney. Even where an individual owner could technically proceed alone, the work of contesting an income-approach valuation belongs with counsel and the evidence team behind them. This is the spot to bring your attorney in.
What Censum Does Here
Censum is independent property-tax intelligence and filing rails — not the county, not a law firm, not your counsel of record. What we do is the part that comes *before* the legal argument: show you the county's number on a commercial parcel, surface where the income-approach inputs look stretched, and assemble the evidence record so the case your attorney makes at the Board is built on something solid.
We price flat — never a percentage of any result — and nothing here is a guarantee of a reduction or a promise of an outcome. The income approach is the State's method; the leverage is simply in checking whether the inputs the county plugged into it hold up for your specific building. Many never get checked. That's the opening.
FAQ
How did the county come up with the value on my commercial building?
For income-producing property, the county uses the income approach: it estimates your net operating income and divides it by a capitalization rate (the IRV formula — Income ÷ Rate = Value). The income figure is built from assumed market rent, minus vacancy and collection losses, plus miscellaneous income, minus operating expenses and reserves. Each of those is an estimate that can be challenged.
Why doesn't the county count my mortgage or property taxes as expenses?
Because the State's method handles them inside the capitalization rate instead. The training manual disallows property taxes, debt service, income taxes, depreciation, and capital improvements as line-item expenses, and folds the tax and interest burden into the cap rate's components (the effective tax rate and the mortgage interest rate). They're not ignored — they're accounted for in a different place.
What's the single most common place the number runs high?
There isn't one — that's the point. The county can overstate market rent, under-apply vacancy, lowball your operating expenses, or set the cap rate too low. Any one of those inflates the value, and several can compound. An appeal works each input against the evidence rather than arguing the bill in the abstract.
Can I appeal a commercial assessment myself?
If the property is held in an entity — an LLC, corporation, trust, or condo association, which describes most income property — Illinois requires that you appear at the Board of Review through a licensed attorney; an entity cannot self-represent. Plan to work with counsel. Censum assembles the evidence record that supports the case; the legal argument is your attorney's.
Do you guarantee my assessment will go down?
No. Nothing here is a prediction or a promise of a reduction. The income approach is the State's own method; what Censum does is help you and your attorney see whether the inputs the county used hold up. We price flat, never a percentage of any result.
Why does an error cost more on commercial than on a house?
Cook County assesses commercial and industrial property (Class 5) at 25% of market value versus 10% for a home (Class 2) — a 2.5x ratio. The same valuation error carries two and a half times the weight before the equalization factor and local rate even apply.
Next Step
Your commercial assessment isn't a verdict. It's a formula with four assumptions inside it, and any of them can be set too high. The owners who keep their carrying costs honest are the ones who check the inputs — and bring counsel when an income-approach value doesn't hold up.
Talk to Censum about a commercial parcel. We'll show you the county's number and where the income-approach inputs look stretched, so your attorney's case starts on solid ground. Censum is independent and is not affiliated with Cook County, and nothing here is legal or tax advice.