Hoosier Property Tax Re-Re-Reform?

Indiana legislators passed a contentious property tax reform bill during the 2025 session that remains in the public conversation as the legislature prepares to launch its 2026 session. The legislation—touted as a signature initiative of Governor Mike Braun—will have lasting local repercussions. This is ironic, given Braun got 51.16% of Hamilton County’s vote. While there is talk about reopening this legislation, there are significant differences as to why and how it should be revisited, or whether it should be addressed at all.  

The question centers around Senate Enrolled Act 1 (SEA 1), a 2025 law that phases out the Homestead standard property tax deduction by 2031 and changes the Homestead credit. As a reminder, a deduction provides a reduction in property taxes for homes that serve as primary residences for their owners. Whereas a credit is an actual subtraction from the tax bill, after the tax rate is applied.

SEA 1 directs the standard deduction to be gradually phased out by 2031. It also increases the supplemental deduction from 37.5% of the home’s value in 2025, to 40% in 2026, and implements ongoing raises until it reaches 66.7% in five years (essentially becoming the new “standard deduction.”) It also provides for a new 10% tax credit applied to homestead property taxes owed, capped at $300.

Potential Negative Impacts of SEA 1

This new legislation might seem positive to most homeowners, but it creates certain challenges. Because it’s a percentage formula, those who have higher home values will benefit more than those with lower-priced ones. The new tax rates also will impact property tax revenue collected by local governments in communities with higher home values, as in Hamilton County.

• How SEA 1 could impact owners of lower-valued homes: A study by the Indiana Fiscal Policy Institute shows that the home assessed value point where the old and the new tax formulas break even is $102,740. The average home value in Indiana is $234,500, and is $433,528 in Hamilton County. This shifts the tax burden to rural communities, which tend to have lower home values.

• How SEA 1 could impact businesses: The new law raises the exemption threshold for business personal property taxes from $1 to $2 million in 2026, which means many more small businesses now will not pay any personal property tax. It does myriad other things, including increasing deductions for residential non-homestead properties (like apartments), which could negatively impact forecast tax revenue from Tax Increment Finance (TIF) districts.

• How SEA 1 could negatively impact communities: Communities with high homestead values will be hit hardest by the law by reducing tax revenue collections, but the law provides new options that shift the burden of taxation to local governments. The current property tax cap is a rate of $3 per $100 in assessed value, or 3%. Fishers’ tax rate is currently 2.2011%.

Options for Communities That Need to Close the Revenue Gap Created by SEA 1

Possible options include the following:

1. Move to gradually increase local property tax rates up to the capped rate.

2. Explore raising county local income tax rates.

3. Impose a new municipal income tax rate now allowed beginning July 1, 2027, not to exceed 1.2% (currently Hamilton County has a 1.1% local countywide income tax rate with certified distributions of a portion of that tax to local municipalities, and this would be in addition to that).

4. Cut services by lowering budgets.

For many communities, property taxes will continue to rise as the assessed values of homes increase—what precipitated the introduction of SEA 1 in the first place. 

Rep. Todd Huston (R-District 37) recently wrote an Indianapolis Business Journal opinion piece, in which he asked communities to live within their means to support property tax relief for homeowners. He suggests communities work to “grow their assessed value within their communities if they want to provide more services” and create “thriving communities where people want to live, work, own a home, and raise their kids.” He does not make suggestions on how communities can inspire this growth with reduced revenues and possible tax burdens shifted from property to income taxes.

No one wants to pay more taxes, but while owners of more expensive homes will benefit from the new property tax reform, those with lower-valued homes will not see the benefits. There also is now a possibility that a new local municipal income tax could be imposed.

Without reform or additional taxes implemented, the communities that Huston hopes will strive to be more vibrant will need to cut the services that ironically make them vibrant to begin with.