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Capital Comments: Farmland Property Taxes May Keep Increasing

The memo was posted at the end of December, on the Indiana Department of Local Government Finance website. It announced the base rate for farmland at $2,280 per acre for property taxes in 2025. That’s up 20 percent from this year’s $1,900. It will be the third straight year of big increases. The base rate rose 16 percent from $1,290 in 2022 to $1,500 for 2023, and 27 percent to $1,900 for 2024. 

What’s the base rate, and why is it going up so much? The base rate is a dollar value per farm acre calculated each year by the DLGF, the agency that oversees the property tax in Indiana. It’s the starting point for the assessment of farmland for property taxes. The base rate is calculated from a formula with farm income per acre in the numerator and a capitalization rate in the denominator. 

Farm income is measured with data on rents, commodity prices, yields and costs. The capitalization rate is set by rule, and for the past 10 years it’s been 8 percent. The DLGF does this calculation using numbers from the most recent six years. They drop the highest year’s result, and average the rest to get the base rate. For each farm acre the base rate is adjusted for soil productivity and sometimes for influence factors, such as frequent flooding. Then the resulting assessed value is multiplied by the local property tax rate to set the tax bill.

Each year the DLGF adds the most recent year’s data to the base rate’s six-year calculation and drops the numbers from the oldest year. For taxes in 2025, the data for 2023 were added and the data for 2017 were dropped. The entry for 2017 was $1,281; the entry for 2023 was $3,263. So the base rate average went up by $380. 

In 2017 the calculation used an average price of corn of about $3.70 per bushel. In 2023 the price was $5.60. The 2017 soybean price was $9.50; the 2023 price was $13.50. The main reason for the rise in the base rate is that commodity prices were higher last year than they were seven years ago. 

For taxes in 2023, farmland tax bills did not rise by the full 16 percent increase in the base rate. Rural property tax rates went down a little, which cut the average tax bill hike to 13 percent. Small favors, perhaps, but better than the typical 2 percent tax rate increase.  

Tax rates fell because assessed values rose across the board. Property values spiked after the pandemic recession. Home assessments rose 21 percent for 2023 taxes, rental housing assessments rose 15 percent, and business building assessments rose 11 percent. 

Property tax rates are recalculated each year by dividing levies by assessed values. Indiana imposes a maximum on most levies, and that maximum rose 5 percent in 2023. Since assessed values rose by more than 5 percent, tax rates fell in many communities.

Looking ahead, tax rates may fall again this year. The General Assembly cut the increase in the maximum levy to 4 percent, so levies will increase less. But the legislature also provided tax relief to homeowners by increasing the size of a homestead deduction. This will reduce the average increase in home assessments from about 12 percent to 4 percent. Overall assessed value will rise less, so tax rates won’t fall as much. 

Effectively, the tax relief for homeowners means farmland owners will pay a bigger share of 2024’s levy increase.

The base rate will keep increasing for as long as current commodity prices are higher than they were seven years before. For taxes in 2026, the base rate formula will drop 2018’s prices. Corn was about $3.60 per bushel that year. If the corn price is higher than that in 2024, the base rate is likely to go up again in 2026. The formula won’t start dropping high commodity prices until 2029, when the prices from 2021 are eliminated. The base rate is likely to rise until then, probably topping $3,000 per acre.

The last time the base rate increased so much, the General Assembly changed the base rate formula. Will it do that again?

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