The state of Indiana has some general rules governing deductions, exemptions and property tax caps. However, the calculation and collection of property taxes is handled at the county level. Each of Indiana’s 92 counties has its own tax rate. That rate is combined with the tax assessments of multiple jurisdictions to arrive at a property’s final gross tax levy, which can be substantially different than the actual tax levy once all the statewide rules are applied.

Average Property Taxes

The statewide average effective property tax on residential real estate is 0.88%. The effective property tax rate is calculated by dividing the total assessed property value by the total property taxes collected. The county with the lowest average effective property tax rate is rural Orange County with a rate of 0.57%. The highest effective rate of 1.08% is collected by Hamilton County, which includes upscale suburbs north of Indianapolis.

Comparison to National Average

Indiana's effective tax rate is the 23rd lowest among all states and the District of Columbia. The national average tax rate is 1.13%, and the median rate is 1%.

Comparison to Neighboring States

Indiana has a lower tax rate than all of its four neighboring states except Kentucky, which has an effective tax rate of 0.84%. The other three states have substantially higher rates. Ohio, with a 1.55% effective rate, ranks 40th nationally. Michigan ranks 44th nationally, with residents paying an effective rate of 1.83%. The highest rate, 2.25%, is paid by homeowners in 50th ranked Illinois.

Property Tax Example

The only way to understand how property taxes work in Indiana is to look at an example based on a near median-priced home.

All owner-occupied residential property qualifies for a homestead standard deduction of the lesser of 60% of the home’s assessed value or $45,000. There is also a supplemental homestead deduction equal to 35% of assessed value less than $600,000 and 25% of assessed value over $600,000. The supplemental homestead deduction is applied to the assessed value remaining after the homestead standard deduction is applied.

A $130,000 home qualifies for a homestead exemption of $45,000. The new assessed value of the property is $85,000. The 35% supplemental homestead deduction comes to $29,750. The new net assessed value of the property is $55,250.

The state provides a deduction to homeowners making mortgage payments. The mortgage deduction equals the lesser of the mortgage balance, half of the assessed property value, or $3,000. The $130,000 home qualifies for the $3,000 deduction, making the net assessed value $52,250. There are additional deductions available to the blind, disabled veterans and people over age 65.

Figuring the Tax

The net assessed value of $52,250 is multiplied by the tax rate of the district in which it is located. A $130,000 property in the Marion County district of Center Township, downtown Indianapolis, and its immediately surrounding neighborhoods is taxed at a mill rate equivalent to 3.0273%. The gross annual property tax is $1,582. Before the final tax can be determined, there is another law to apply.

State Property Tax Cap

Indiana has a property tax cap in place on owner-occupied residential real estate. The property tax bill cannot exceed 1% of the original assessed value. The $130,000 home cannot be taxed more than $1,300. However, Marion County has one more tax levy.

When a home qualifies for a lower tax bill due to the property tax cap, an additional tax of 0.2025% is levied on the net asset value. This adds $106 to the property cap tax for the example home. The final tax is $1,406. Comparatively, if the property is located in the Orangeville Township district of Orange County with a tax rate of 1.3065%, the property tax bill would be $683. Individual taxing authorities receive a portion of the tax revenues according to the percentage of the gross tax rate attributable to the individual authority.

Residential Rental and Agricultural Property

The only universal deduction for residential rental or agricultural property is the same mortgage deduction that applies to homesteaded real estate. The property tax cap is set at 2% of gross assessed value. The tax on a property with a gross assessed value of $130,000 is $2,857 in Indianapolis and $1,659 in Orangeville Township.

Commercial Real Estate

The property tax cap on commercial real estate is 3%. Commercial property receives the same mortgage deduction provided to the other classes of real estate. The tax on a $130,000 commercial property in Indianapolis is $3,845. The tax is $1,659 in Orangeville Township.

Key Takeaways

Indiana’s complicated system of taxation serves to reduce the homeowner’s share of the property tax burden significantly. Homebuyers or real estate investors need to contact the county assessor’s office to receive a property tax quote for a specific property.

Iowa Property Tax Guide

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