LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington St., Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 6801 NOTE PREPARED: Dec 30, 2023
BILL NUMBER: SB 265 BILL AMENDED:
SUBJECT: Elimination of Property Tax on Homesteads.
FIRST AUTHOR: Sen. Bassler BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED:XGENERAL IMPACT: State & Local
DEDICATED
FEDERAL
Summary of Legislation: Homestead Property Tax: This bill changes the credit for excessive property taxes
for homesteads from the amount by which a person's property tax liability attributable to the person's
homestead exceeds 1% of the gross assessed value (AV) of the property that is the basis for determination
of property taxes for the calendar year to an amount equal to the person's property tax liability attributable
to the person's homestead. It excludes from the credit any portion of a person's property tax liability that was
approved by voters in a referendum and that would not ordinarily be subject to a credit for excessive property
taxes.
LIT: The bill allows a county's adopting body to adjust the tax rate imposed on the adjusted gross income of
local taxpayers in the county based on the actual property taxes that were due and payable during 2024 to
compensate for the amount of any tax revenue shortfall incurred as a result of the reduction in tax revenue
attributable to the increase in the credit amount.
For years beginning after December 31, 2024, the bill requires the Department of Local Government Finance
(DLGF) to, before July 1 of the year in which property taxes are first due and payable, estimate the amount
of any tax revenue shortfall incurred by the county in the year in which the property taxes are first due and
payable as a result of the reduction in tax revenue attributable to the increase in the credit amount. For years
beginning after December 31, 2024, the bill allows a county's adopting body to adjust the tax rate imposed
on the adjusted gross income of local taxpayers in the county in accordance with the estimate to compensate
for the amount of any property tax revenue shortfall incurred by the county in the year in which the property
taxes are first due and payable as a result of the reduction in tax revenue attributable to the increase in the
credit amount.
SB 265 1 This bill provides that the maximum tax rate that may be imposed on the adjusted gross income of local
taxpayers in a county after an adjustment may not exceed 2.9% in addition to: (1) the maximum allowed
property tax relief rate in the county; (2) the maximum allowed local income tax expenditure rate in the
county; and (3) the maximum allowed special purpose tax rate in the county. It provides that a county's
adopting body, at its discretion, may increase the adjustment by an additional rate of 0.25%. The bill requires
the revenue collected as a result of the adjustment to the tax rate imposed on the adjusted gross income of
local taxpayers in the county to be treated as property taxes for all purposes. It requires the DLGF to approve,
in a manner determined by the DLGF, the estimate, the corresponding adjustment, and the use of the revenue
for each county.
Renter’s Deduction: The bill also increases, from $3,000 to $9,000, the amount an individual who rents a
dwelling for use as the individual's principal place of residence may deduct from the individual's adjusted
gross income.
The bill makes conforming changes.
Effective Date: July 1, 2024; January 1, 2025.
Explanation of State Expenditures: DLGF: This bill will add additional workload for the DLGF beginning
in FY 2025. The DLGF will be required to estimate the total property tax shortfall in each county under the
bill. The agency's current level of resources should be sufficient to implement this provision.
LIT: The Department of State Revenue, State Budget Agency, and DLGF may experience an increase in
administrative workload should counties choose to adopt a Local Income Tax (LIT) rate for funding property
tax cap credits that are attributable to homestead assessed values. These agencies' current level of resources
should be sufficient to implement this provision.
Department of State Revenue (DOR): The DOR would incur some administrative expenses relating to the
revision of tax forms, instructions, and computer programs to reflect the changes to the renter's deduction.
The DOR's current level of resources should be sufficient to implement these changes.
Explanation of State Revenues: Renter’s Deduction: This bill increases the maximum renter’s deduction
to $9,000. The provision may decrease revenue into the General Fund by approximately $88.8 M beginning
in FY 2026. The revenue impact may decline slightly through FY 2028 as the individual income tax rate
decreases through tax year 2027. The estimate is based on Individual Adjusted Gross Income (AGI) Tax
returns filed for tax year 2021 and estimates of the amount of contract rent paid in Indiana from the American
Community Survey.
In 2021, approximately 580,800 returns claimed the maximum deduction out of a total of about 665,500
returns claiming the deduction. The group of 580,800 returns claiming the maximum deduction was
distributed according to Indiana contract rent data published by the U.S. Census Bureau. A new renter’s
deduction amount was derived for those returns according to the rent distribution and the $9,000 maximum
deduction under the bill. The estimate accounts for the possibility that certain taxpayers will have insufficient
rent paid to claim the full deduction.
Explanation of Local Expenditures: LIT: The bill allows a county fiscal body to adopt an ordinance that
imposes a LIT rate in order to compensate for the amount of any property tax revenue shortfall that is
attributable to property tax cap credits for homestead assessed values in the county. The adopted tax rate may
SB 265 2 not exceed 2.9%. The revenue attributable to the rate shall be treated as property tax revenue. A county fiscal
body should have sufficient resources to pass the required ordinance establishing this rate.
Explanation of Local Revenues: Summary - This bill reduces local revenues beginning in CY 2025 by
eliminating the non-referendum portion of homestead tax bills. The bill also permits counties to impose an
additional LIT rate to compensate for the property tax loss. Ultimately, the overall impact on local revenues
depends on the amount of tax revenue generated by the LIT rate (if any) that is imposed locally as compared
to the property tax loss.
Homestead Property Tax: Beginning with taxes payable in CY 2025, this bill changes the tax cap credit from
the amount of taxes that exceed 1% of AV to a credit equal to the non-referendum taxes on each homestead.
Property tax revenue will be reduced by an estimated $3.50 B in CY 2025, $3.73 B in CY 2026, and $3.93
B in CY 2027.
LIT: Under this bill's provisions, counties may choose to adopt a LIT rate in order to compensate for the
amount of any property tax revenue shortfall that is attributable to property tax cap credits for homestead
assessed values in the county. The maximum local income tax rate a county fiscal body may impose is 2.9%.
The revenue collected from this rate is initially distributed directly to the county for allocation to all taxing
units in the county. Should counties choose to adopt a LIT rate for the purpose previously noted, the county
unit could receive their first certified distribution of this revenue in CY 2025 if the county fiscal body passes
an ordinance before November 1, 2024. Exhibit A contains the estimated CY 2025 and CY 2026 LIT rates
that would be necessary to compensate for the revenue shortfall attributable to the increase in homestead
circuit breaker credits under the bill.
Renter’s Deduction: The tax deduction will decrease taxable income, so counties imposing LIT may
experience revenue loss. Based on the current average LIT rate of 1.67%, the statewide revenue loss may be
approximately $49.4 M beginning in FY 2026.
Additional Information - The bill increases the maximum possible LIT rate that a county may impose. The
county rate established in the bill is a dedicated use, separate from the existing expenditure rate, property tax
relief credit rate, and special purpose rate capacity. The maximum expenditure rate for all counties other than
Marion County is 2.5%. The maximum rate for Marion County is 2.75%. The maximum property tax relief
credit rate for all counties is 1.25%. A special purpose rate is specific to the county that has received the
authority from the General Assembly to impose such a rate.
State Agencies Affected: Department of Local Government Finance; Department of State Revenue; State
Budget Agency.
Local Agencies Affected: County auditors; County fiscal bodies; Local civil taxing units and school
corporations.
Information Sources: LSA property tax model; LSA Income Tax Database; U.S. Census Bureau, American
Community Survey, 2022. ACS Indiana 1-Year Estimates Detailed Tables, Contract Rent.
Fiscal Analyst: Bob Sigalow, 317-232-9859; James Johnson, 317-232-9869; Camille Tesch, 317-232-5293.
SB 265 3 Exhibit A
Estimated Local Income Tax Rate To Replace Homestead Property Tax
CY 2025CY 2026 CY 2025CY 2026
Adams 1.2% 1.2% Lawrence 1.5% 1.5%
Allen 1.3% 1.4% Madison 1.3% 1.3%
Bartholomew 1.4% 1.5% Marion 1.6% 1.7%
Benton 1.2% 1.2% Marshall 1.2% 1.3%
Blackford 1.4% 1.4% Martin 0.7% 0.8%
Boone 1.5% 1.5% Miami 1.0% 1.0%
Brown 0.8% 0.8% Monroe 1.6% 1.6%
Carroll 0.9% 0.9% Montgomery 1.2% 1.3%
Cass 1.1% 1.2% Morgan 1.3% 1.3%
Clark 1.9% 2.0% Newton 1.4% 1.4%
Clay 0.4% 0.4% Noble 1.2% 1.3%
Clinton 1.3% 1.3% Ohio 1.3% 1.3%
Crawford 1.3% 1.4% Orange 1.0% 1.1%
Daviess 1.0% 1.0% Owen 1.4% 1.4%
Dearborn 1.7% 1.7% Parke 0.7% 0.7%
Decatur 1.4% 1.4% Perry 1.1% 1.1%
DeKalb 1.1% 1.2% Pike 1.3% 1.3%
Delaware 1.3% 1.3% Porter 1.7% 1.7%
Dubois 1.3% 1.3% Posey 1.3% 1.3%
Elkhart 1.3% 1.4% Pulaski 0.6% 0.6%
Fayette 1.3% 1.4% Putnam 0.9% 0.9%
Floyd 1.3% 1.3% Randolph 0.9% 0.9%
Fountain 1.0% 1.0% Ripley 1.0% 1.1%
Franklin 1.5% 1.5% Rush 1.1% 1.1%
Fulton 1.0% 1.0% St. Joseph 1.3% 1.4%
Gibson 1.2% 1.2% Scott 1.1% 1.1%
Grant 1.1% 1.1% Shelby 1.3% 1.3%
Greene 1.0% 1.0% Spencer 1.1% 1.1%
Hamilton 1.6% 1.6% Starke 1.5% 1.5%
Hancock 1.8% 1.8% Steuben 1.0% 1.1%
Harrison 1.2% 1.3% Sullivan 0.7% 0.7%
Hendricks 2.0% 2.0% Switzerland 0.8% 0.8%
Henry 1.3% 1.3% Tippecanoe 1.3% 1.3%
Howard 1.6% 1.6% Tipton 1.3% 1.4%
Huntington 1.3% 1.4% Union 1.1% 1.1%
Jackson 1.0% 1.0% Vanderburgh 1.4% 1.5%
Jasper 0.7% 0.7% Vermillion 1.0% 1.0%
Jay 0.6% 0.6% Vigo 1.2% 1.2%
Jefferson 1.1% 1.2% Wabash 0.8% 0.8%
Jennings 1.1% 1.1% Warren 0.8% 0.8%
Johnson 1.9% 1.9% Warrick 1.3% 1.4%
Knox 1.0% 1.1% Washington 1.2% 1.2%
Kosciusko 1.2% 1.3% Wayne 1.2% 1.2%
LaGrange 0.6% 0.6% Wells 1.0% 1.1%
Lake 1.8% 1.9% White 1.0% 1.1%
LaPorte 1.6% 1.7% Whitley 1.2% 1.2%
SB 265 4