Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
No one has ever said: “I love paying property taxes.” But we cannot live without the quality of life those dollars buy, such as infrastructure, public safety, public buildings, libraries, parks and the salaries of employees who take care of our garbage and pave our roads.
Senate Enrolled Act 1, passed by the Legislature in 2025, took a big swipe at the ability to fund government with property taxes and now the legislature is proposing to take a second swipe.
In simplest terms, SEA 1 gives qualifying homeowners a credit of 10% of their property tax bill, capped at $300, beginning in 2026. Separately, it changes homestead deductions through 2031, reducing the assessed value upon which the tax liability is based.
By 2031, the standard homestead deduction will be gone, but the supplemental deduction will exclude 66.7% of a qualifying home’s assessed value from taxation.
To cover the shortfall, local governments can use their current authority to raise local income taxes but in 2029, SEA 1 provides a broader income-tax restructuring. Whether the income tax increases will cover the reduced property tax revenue remains to be seen.
And now, Republican legislators are floating another idea: phasing in a credit against homestead property taxes over five years until it reaches 100%. They propose financing that relief through higher local income taxes. Whether current income tax caps can support that shift remains uncertain.
I am nowhere close to being an expert in government finance or any type of tax. I do not even do my own taxes, but I think I understand the bottom line: revenues necessary to fund local budgets will be shifted from property tax to income tax with the discretion to raise income taxes left to local elected officials.
In other words, if you own a home, you will be saving money because ultimately, you will only be paying property tax based upon 33.3% of the assessed value all the way down to paying nothing, but you will also likely be paying more income tax to make up the budget shortfall.
If you cannot afford to purchase a home or if you simply choose not to own a home, you will not recognize any property tax savings. But you could well be paying more in income taxes, perhaps significantly more as the less money you make, the more you feel the increase.
In other words, to provide relief to those who can afford to purchase a home, we are going to look to those who cannot to finance relief for homeowners.
When this issue was raised, supporters of SEA 1 countered that the income taxes only go up if a local government enacts an income tax increase.
It was suggested that to avoid increasing income taxes, local governments should instead look to reduce spending.
In Indianapolis, that would require cutting millions of dollars. Where do we start? Avoiding an income-tax increase would likely mean cuts to services residents depend upon.
For local elected officials of both parties, it’s damned if you do, and damned if you don’t. Cut programs and you will have complaints but raise income taxes to keep programs and you will have complaints.
But isn’t it ironic? The Legislature will not let Indianapolis decide where motorists can turn right on red lights but is oh so willing to let Indianapolis decide whether to raise the local income tax. Local control apparently begins where the blame begins.•
__________
Celestino-Horseman is an Indianapolis attorney.
Click here for more Forefront columns.
Please enable JavaScript to view this content.
Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our comment policy that will govern how comments are moderated.