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An Overview

Indiana property taxes are fairly reasonable compared to many places where Buyers originate that we encounter. State law caps the owner occupied residential property taxes at 1% of the gross assessed value. However, local municipalities are able to increase that amount with voter consent. Many localities around the Indianapolis area have increased upon those caps to cover various school initiatives. As of 2019, the average tax rate on property was 1.08% of the gross assessed value in Hamilton County as posted by some online tax watchdogs. In Boone County, the average tax rate was 1.02%. In Hendricks County, 1.11% was the average reported. And in Marion County, the average tax rate was 1.15%.

To be clear, property tax rates in Indiana can and do exceed the rate imposed by the caps, but deductions such as the Homestead Deduction may lower your overall tax and keep it from exceeding the cap. Remember the cap is based of the gross assessed value and not the adjusted value. If the taxes do exceed the cap, a circuit breaker rule kicks in reducing the rate via a credit/rebate down to the State/Local cap. The base caps include a maximum of 1% of gross assessed value for residential owner occupied, 2% of value for rental/non-owner occupied property and farmland, and 3% of value for all other types with the local allowance added on. By definition, residential property is limited to that occupying 1 acre of property. If there is land in excess of an acre and it is not evaluated to be farmland by the assessor, then it is considered excess residential property, which can result in a higher tax rate for that property covered by the 3% cap.

What Can You Expect to Pay?

A high percentage of properties in Brownsburg, Carmel, Fishers, Indianapolis, Noblesville, Westfield and Zionsville are considered residential properties. With the Homestead deduction filed, the cap will insure the property taxes for these properties are roughly 1% of the gross assessed value or lower, unless that property is accompanied by excess acreage. With property values increasing over the past several years, one can usually expect the property taxes will rise after purchasing. The purchase price will have a strong influence on the assessed value. It is probably safe to say that you can expect your taxes to cap out in most areas for residential owner-occupied property, and the assessed value will likely drift toward the purchase price, unless you buy a house that was significantly undervalued. If that is the case, the assessed value may exceed what you paid for it if the assessor is doing his job. Most people pay market value though. Historically though the assessed values are typically lower than market value, presumably in part for political reasons

Where It Gets Confusing

Property taxes in Indiana are paid in the Arrears, meaning you owe the money even though it may not be due yet. In Indiana that means these taxes are paid the following year. So the taxes you pay in 2019 for example are the taxes for 2018 payable in 2019. 2019s accrued taxes are not actually due until 2020. Property taxes are paid in two installments, so the taxes are broken up into two equal parts known as semi-tax. The first installment is due on May 10 of each year and the second installment is due on November 10th of each year. Those dates may vary slightly.

In the Indiana Real Estate contracts it is generally expected that the Seller will credit the Buyer for any unpaid property taxes on the property that are owed even though those property taxes are not yet due. This can be confusing because many people believe when they pay their property taxes on the due dates mentioned that they are, at least on those days, caught up. However, if you pay your property taxes in full on May 10th, you have only paid the first half of the taxes owed for the previous year. You still owe the second half of the previous year’s taxes plus a prorated amount of taxes for the current year. This is very confusing and even most Realtors don’t have a clue what you owe. The Title Company is tasked with determining the payoff and collecting at closing. To get a very close estimate of what the Title Company will collect, select our calculator link from the menu bar and choose the Property Tax Payoff calculator link or click here. You will need to know your current semi-tax amount and the date of your anticipated closing. If you just want to see what you currently owe and are not selling, choose tomorrow’s date as the closing date.

The Title Company estimate for what a Seller owes in taxes is not a guarantee that this is what the Buyer will be billed when the taxes are due. That is because even though you owe taxes for the current year, it is very likely that a tax rate has not been set for the current year. The caps will still apply unless the law is changed, but the assessed value and tax rate can vary. To get over this complication, the Indiana Real Estate Purchase Agreement for Improved Property has a clause in it that essentially states that where the semi-tax for the year has not yet been specified, the last known year where it was specified will be used. I’m paraphrasing, but that is basically how it is handled and once closed the settlement is final. There are other headaches related to property taxes that are encountered and we as Realtors can help advise you on those, which can be particularly expensive if you don’t watch out.

You Must File Deductions to Qualify

There are numerous deductions you can file to reduce the amount of property taxes you have to pay. Probably the most important one is the Homestead Deduction. It saves you money two ways. One is that it identifies you as the owner occupant and sets your tax cap to 1% rather than 2%, which is what your cap would be if you are not an owner occupant. You have to wait a year if you miss the deadline for that, so make sure you don't. The Homestead also reduces the value on which they tax your property. This doesn't always help because many localities have a tax rate greater than 1%, sometimes much higher, so basically with or without that reduction you will still cap out. There is also a mortgage deduction that gives you a very small reduction, and there are other deductions for various things. A complete list can be found here. One thing you should note, that you can lose your Homestead Deduction if you refinance your home and fail to reapply for your Homestesd Deduction.

Helpful Links for Tax Info on Specific Property

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