Property taxes on farmland went up a lot in 2023 and 2024. They’ll be going up a lot in 2025 too. The reason is the rise in the base rate of farmland. The reason that’s been rising is the pandemic.
Tax bills on farmland increased 11 percent in 2023, 27 percent in 2024, and will probably increase about 20 percent in 2025. The property tax is a tax on the value of property, and the value of farmland has been increasing. According to a survey by the Purdue Department of Agricultural Economics, the average selling price of an acre of average-yield land rose from about $8,100 in 2021 to $11,600 in 2024.
Indiana doesn’t tax farmland based on its selling price, though. We use an assessment method that starts with the base rate of farmland. This is a dollar amount per acre set each year by the state’s Department of Local Government Finance. The base rate is then adjusted by a productivity index for each acre, and sometimes by an influence factor to account for features that reduce yields.
The base rate is calculated by dividing measures of farm income with a capitalization rate. Farm income is measured with rents, and with commodity prices times yields, less costs. The capitalization rate can be set at 6, 7 or 8 percent, but it’s been 8 percent for almost a decade. The calculation is done using data from the six most recent years. The highest value is dropped, and the remaining five are averaged.
Corn and soybean prices spiked after the pandemic. They stayed high from 2021 through 2023, but now have come back down. When the DLGF updated the formula after the pandemic, new higher prices were added, old lower prices were dropped, and the base rate went up.
The base rate was $1,290 per acre for taxes in 2022. It rose 16 percent to $1,500 for 2023, 27 percent to $1,900 for 2024, and 20 percent to $2,280 for taxes this year. The DLGF has already published the base rate for taxes in 2026 at $2,390, a 5 percent rise. Smaller increases should continue after that. But the high corn and bean prices won’t begin to drop out of the calculation until 2029.
The pandemic increased commodity prices, higher prices increased the base rate and that raised farmland property tax bills.
The General Assembly is looking at ways to bring the base rate down. House Bill 1192 requires the DLGF to drop the two highest values from six years of calculations. And it increases the three possible capitalization rates by 2 percentage points each, to 8, 9 and 10 percent.
How much difference would this make? This year’s base rate is $2,280. If the two highest years were dropped, and the capitalization rate was 10 percent instead of 8 percent, the base rate would be $1,590 for this year, 30 percent lower than it is, and 16 percent less than in 2024. This would result in a substantial tax reduction for farmland owners, though formula changes could not take effect until 2026, or maybe 2027.
There are always tradeoffs, of course. Property tax rates are set each year by dividing the levy, which is the revenue local governments raise, by the assessed value within the jurisdiction. If farmland has a lower assessment, each jurisdiction’s assessed value will be lower, and a higher rate will be needed to collect the levy. Farmland owners would still get a tax break, but other taxpayers would pay more. This would affect rural areas the most, because that’s where farmland is a large share of total assessed value.
In the Town of St. John case back in 1998, the Indiana Supreme Court said assessments must be based on “objective measures of property wealth.” The base rate formula starts with objective measures of prices, yields, costs, rents and interest rates. Income capitalization is an accepted way to measure property wealth. We don’t know what the court would think of dropping one or two high values from the average, or legislating a capitalization rate different from market rates.
Property tax policy is on the table in the 2025 General Assembly, and that includes the possibility of base rate reform.