The second installment for 2023 property taxes was due earlier this month. If you’re a homeowner, either you sent a check to your county treasurer or your bank paid the tax out of escrow. Homeowner tax bills were especially painful in 2023. Statewide average homestead tax bills went up 17 percent over 2022, a much bigger increase than in years past. So we wonder, now that 2023 is done, what will happen to tax bills in 2024?
To answer, we need to know a bit about the property tax system. Tax bills rose so much in 2023 because of an extraordinary rise in gross assessed value. Gross assessed value is the county assessor’s estimate of the value of each property parcel. For owner-occupied homesteads it’s the likely selling price if it was put on the market. The gross assessed value of all taxable property, including homesteads, rental housing, farmland and business property, rose 13 percent in 2023. The average for the previous five years had been 4 percent.
Net assessed value is the gross minus deductions. Net assessments for all property rose 16 percent in 2023, more than the increase in the gross. That’s because the homestead standard deduction is fixed at $48,000, so it becomes an ever smaller share of the total as assessed value rises.
Net assessed value is taxable. The tax bill is the net times the tax rate. That rate is set by dividing the revenue local governments intend to raise, called the levy, by each jurisdiction’s net assessed value. Much of the levy is limited by a state maximum, which increased 5 percent for 2023. A 5 percent levy increase over a 16 percent net assessed value increase should have cut tax rates a lot. But debt service levies and operating referendum levies are outside the maximum, and many local units did not cut those tax rates. So the levy increased 9 percent statewide.
Homestead gross assessed values rose 16 percent on average. Net assessments increased 21 percent (because of that fixed deduction). Tax rates fell, but not by much, and that’s why homeowner tax bills rose an average of 17 percent.
Now we have the first evidence for what will happen in 2024. Indiana’s Gateway system has posted the certified net assessed values for taxes in 2024, for all the counties. The statewide increase for all property was 6 percent, a lot less than the 13 percent rise in 2023, but still higher than the typical rise before that.
Homestead net assessments increased 4 percent for 2024, much less than last year’s 21 percent increase. Part of the reason is a slower rise in selling prices. At the end of 2022, Indiana home prices had risen 12 percent over the previous year, compared to 17 percent in 2021. Selling prices in 2022 were used to set assessments in 2023, which will be taxed in 2024.
Another reason for slower growth in homestead net assessed value is a policy change passed by the General Assembly earlier this year. Legislators increased the supplemental deduction for homesteads from 35 percent of the value after the standard deduction, to 40 percent, just for 2024. That seeming small change increases the size of the deduction a lot. It probably reduces homestead net assessment growth by 8 to 9 percentage points. Without that deduction rise, the homestead net might have risen 12 percent instead of 4.
The legislature also cut the maximum levy increase from 5 percent to 4 percent, and restricted increases in operating referendum revenues to 3 percent. Debt levies are still uncontrolled. Still, levies will increase more slowly in 2024. Let’s call it 4.5 percent, half the 9 percent increase this year.
If total net assessed value rises by 6 percent, and the levy rises by 4.5 percent, the average tax rate should fall about 1.5 percent. A homestead’s 4 percent rise in net assessed value would result in a tax bill increase of 2.5 percent. Compare that to last year’s 17 percent average rise.
Of course, this is all back of the envelope guessing. We’ll know for sure when the statewide data comes in next spring. You’ll know sooner than that, when your tax bill arrives in March.
