Deconversion vs Duplex Up and Basement Unit to keep as a two flat

[Peter S.]

Chicago market specific, please.  Northcenter

I have a traditional 2 flat with a basement. Two apartments + unfinished basement.  Back stairs for second exist. Two separate gas meters, electric.  Electric panels are currently in the basement.  

I have a few questions please, and feedback is appreciated.  I just asked an architect, no answer yet, and would like to compare his answer with feedback here. 

Goal is to remain as MF for tax and have future flexibility to use or rent the basement unit.  In the immediate future, we won't rent any units here. 

Can we duplex up to remove the back porch stair and call the basement a future apartment without going the "deconversion" fee ( $15,000) and future tax disadvantages?  We have tax write offs if we ever rent this thing, unlikely, but there opportunity is gone if we call it a "deconversion".

Does this require a zoning change, etc.?  

Will the basement unit be considered an ADU? Note that we are going from 2 flat to 2 flat, although the unit moves down.

Do we need to finish the basement unit ?  If not fully finished, we can even get more tax discounts as a disabled unit. That's legal and we have done it before while rehabbing our other units.   This is not a trick, I just don't have the money to finish it. 

Second exit to the basement would need to be provided.  We have a side option. 

Utilities.   Do we need to give the basement unit their own gas and electric -  or at least all electric- , vs. can we include all utilities in the "rent", if we ever rent it or Airbnb?

Panels. I assume the electrical panels can't be in the basement unit unless is a "common space".  What about water heater, furnaces, etc.?   I can build a "common space".

Stairs to basement.  Can stairs be added to the basement from the first floor?  We can add a "door" with a lock to separate the space. 

Thanks a lot, 

[Ricardo R.]

Hey Peter,

We’ve run into almost this exact scenario on Chicago 2-flats, so here’s what we’ve learned when trying to keep the property as a 2-flat for tax purposes while adding basement flexibility:

1. Deconversion vs. Duplex Up

• If you deconvert to single-family, you lose the multi-family tax benefits and rental potential—so holding onto the 2-flat status makes sense.

• Duplexing up (connecting first floor + basement) while keeping the building a 2-flat is often allowed, but you’ll need to keep two legal units in the structure. The basement wouldn’t be counted as a third unit until it’s permitted as one.

2. Zoning & ADU Considerations

• Chicago’s ADU Ordinance applies if you create an additional dwelling unit beyond the existing count.

• If you stay at 2 units total (just shifting one unit partially to the basement), you likely don’t trigger ADU rules—but confirm with zoning since each ward can interpret things differently.

• If you want to eventually rent the basement as its own apartment, you will need proper zoning, permits, and a second exit per Chicago code.

3. Finishing the Basement

• Chicago allows unfinished basements to be listed as “storage” or “rec” areas until you pull permits for a legal unit.

• You can get some tax benefits for unfinished or disabled units, but those disappear once you officially permit it as a rental.

4. Utilities & Electrical Panels

• If you eventually rent it, you don’t have to split utilities—including utilities in rent is common—but separate meters make future tenant disputes easier to avoid.

• Electrical panels typically cannot be in a private unit unless there’s a locked common area with legal access. Same goes for furnaces and water heaters—create a small common mechanical room for future code compliance.

5. Stairs & Access

• Yes, you can add interior stairs to connect the first floor and basement with a lockable door—lots of Chicago owners do this for duplex units.

• For a legal apartment, you’ll need a second point of egress from the basement to outside ground level per Chicago building code.

If It Were My Property

1. Keep the 2-flat zoning so you don’t lose tax benefits.

2. Add interior stairs + side exit for flexibility.

3. Frame off a mechanical/common area for panels, furnaces, and water heaters.

4. Leave the basement unfinished until you’re ready for permits or rental use.

5. Budget for separate utilities later if you want true rental independence.

6. I hope this helps you a bit and I sent you a DM on BP and hopefully you're able to assist.