The 2025 tax overhaul and what it means for counties

The 2025 tax overhaul and what it means for counties

Senate Enrolled Act 1-2025 (P.L.68-2025) is the largest change to Indiana local finance since the 2008 property tax caps. It does three things at once:

• cuts homeowner bills;
• slows the growth of local levies;
• rebuilds the local income tax (LIT).

A 2026 law, HEA 1210 (P.L.157-2026), then pushed the income-tax rebuild back one year. Every county decision in this study sits inside that timeline.

What changed for property taxes

• Homeowners. The $48,000 homestead standard deduction steps down to zero by taxes paid in 2031 ($40k, $30k, $20k, $10k, then $0). The supplemental deduction rises from 40% to 66.7%. A new credit of 10% of the bill, up to $300, applies automatically from 2026.
• Rentals, other residential and farmland get a new deduction that grows from 6% to 33.4% of assessed value by 2031.
• Seniors and the disabled. The over-65 and blind/disabled deductions became flat $150 and $125 credits. The over-65 tax-cap credit now reaches incomes up to $60,000 single and $70,000 joint.
• Business equipment under $2 million is exempt from taxes paid in 2027.
• Levy growth. It was capped at 4% for 2026. The 2027 growth figure is 6.0%.
• Referendums may be held only at general elections, with new ballot wording.

Why this squeezes counties even with growth allowed. Deductions shrink the tax base, so rates rise, and more bills hit the constitutional 1%/2%/3% caps. Above the caps, a higher rate raises no more money. Analysts presenting to the county commissioners' association in 2025 (Policy Analytics, Baker Tilly, AIC) projected the average rate passing $3 per $100 by 2031.

What it costs local government

The state's Legislative Services Agency estimated, against prior law:

• Others in 2028: schools lose an estimated $336M and cities and towns $231M.
• Taxpayers: homestead bills fall $369–467M a year, while business land and buildings pay $108M more, rising to $402M.
• HEA 1210 restores about $259M statewide in 2028, mostly by keeping the LIT relief credits a year longer.

[embedded content: LSA unit-level estimates for SEA 1-2025 (Apr. 9, 2025), county government unit only; data/sea1\_county\_impacts.csv\]

In 2026 every county government loses revenue (median −5.5%). By 2028 the median loss is 7.8%.

• The largest loss is Lake County, −$46.1M (−20%). Lake also has one of the highest LIT relief rates in the state (1.0% in 2026), and the overhaul phases those relief credits out.
• Next in line: Grant, St. Joseph, Fayette, Hancock, Cass, Hendricks and Madison, each down 12–15%.
• Ten counties come out ahead, led by Carroll (+33%), Pulaski (+21%) and Parke (+10%).
• Caveats: these unit estimates were made before the 2025 cleanup act (HEA 1427) and HEA 1210. They also leave out the flat credits, which LSA puts at up to about $200M a year statewide. Treat them as direction and scale, not a forecast.

The new local income tax, and the delay

• New structure (adopted 2028, in effect 2029; distributions from 2030): — total cap of 2.9%; — a county rate up to 1.2%; — a fire and EMS rate up to 0.4%; — a rate for townships and other non-municipal units up to 0.2% (these three together up to 1.7%); — a separate rate of up to 1.2% for cities and towns of 3,500 or more, which today receive LIT shares set by the county.
• Relief credits end. The property-tax-relief LIT, levy-freeze rates and LIT councils end in 2029 instead of 2028. In 2026, 56 counties used a relief rate.
• If a county adopts nothing, its current rates expire Dec. 31, 2028, except what is needed to cover 1.25 times LIT-backed debt.
• The split with cities. The municipal association (Aim) projects that about half of the cities and towns of 3,500+ lose LIT revenue under the split. That makes the county–city conversation the central local decision of the next two years.

What counties have to decide, and when

Who gains and who pays, as the analysts put it:

• Larry DeBoer (Purdue) and the commissioners' 2025 conference panel expect rates to rise. They say lower-value homes and business real estate fare worst.
• Michael Hicks (Ball State CBER) calls the business tax cuts the biggest change.
• County-level detail on 2026 actual results, and on which counties adopted the homestead-credit LIT or formed a task force, comes from the county sweep below.