The Indiana General Assembly passed a bill to reform property taxes back in April. It’s the third big reform of the past 50 years, after the Bowen reform in 1973 and the Daniels reform in 2008. Eventually we may call this the Braun reform of 2025, but so far it’s mostly being called “SEA-1”, which is Senate Enrolled Act, No. 1. The provisions of SEA-1 phase in over six years, through 2031.
Hey, that means we can predict the future! The reform has a schedule for the changes to occur each year starting in 2026. If the legislature makes no changes — a big if — we know what’s going to happen each year.
The big change in 2026 will be the new supplemental homestead credit. A credit is a subtraction from the tax bill, after the tax rate is applied. The credit amount is 10 percent of the bill, to a maximum of $300. Homeowners will pay that much less in taxes. Local governments will receive that much less revenue.
In 2027 we’ll eliminate property taxes on some business equipment, known as personal property. If a firm has paid less than $2 million dollars for their equipment in total, their equipment will be exempt from property taxes. Most personal property is owned by very big businesses, costing much more than $2 million. Still, this change could reduce personal property assessed value by as much a one-quarter.
Then in 2028 local income tax credits for property tax relief will be eliminated. Some local income tax revenue pays for credits that reduce property taxes. Fifty-nine counties have adopted them, with an average reduction of 7 percent, but it’s much more in some counties. When these credits are eliminated, property owners will lose a tax credit, but income earners will pay lower taxes.
Meanwhile, deductions for homeowners will undergo a major change over the whole six years. A deduction is a subtraction from the assessed value of a home, before the tax rate is applied. The homestead standard deduction is $48,000, and the supplemental homestead deduction is 37.5 percent of the remainder after the standard deduction.
In 2026 the supplemental deduction will increase to 40 percent, meaning a bigger percentage will be subtracted. In 2027 it will rise to 46 percent, and the standard deduction will begin to phase out. It drops from $48,000 to $40,000 that year. The phasing out and phasing in continues, so that by 2031 the standard deduction will be gone, and the supplemental deduction will be 66.7 percent. Without the standard deduction, the supplemental deduction won’t be supplementing anything, so maybe they’ll change its name.
Rental housing and farmland will get a new deduction starting in 2026. These properties have never gotten much in deductions in the past, but the new deduction will phase in, all the way up to 33.4 percent in 2031.
What will property taxes look like in 2031? There are a lot of moving parts, but some things seem clear. Homeowners, rental housing owners and farmland owners will pay less than they would have paid, in the alternate universe where SEA-1 never passed. Maybe they’ll pay less than they paid in 2025. Maybe not.
Property tax rates will rise. Big new deductions mean rates must be higher to collect local revenue. That means any property owner that didn’t get a new deduction will pay more in taxes. That includes owners of business land and buildings, and businesses that own more than $2 million in equipment. Big businesses, in other words.
Owners of low-valued homes may pay more, too. For a $80,000 house, the standard and supplemental deductions reduce taxable assessed value by 75 percent. By 2031 the supplemental deduction will be 66.7 percent. More of the home’s value will be taxed.
Local governments of all kinds will have to make do with less revenue than they would have had without SEA-1. Since taxable assessed value will be lower, fixed rates will raise less revenue. School referendum operating rates are fixed.
One other thing is true. For the next six years, if you don’t like how the property tax is treating you, just wait. It will be different next year.
