The Indiana General Assembly wrapped up its 2025 legislative session on April 25, sending a $44 billion budget and a host of additional bills to Governor Mike Braun, which he signed into law shortly thereafter. Among the most impactful outcomes of this session were sweeping changes to Indiana’s property tax system and significant updates to the state’s economic development approach.
Property tax relief was a cornerstone of Governor Braun’s campaign – and the General Assembly delivered on that promise.
Exemption Threshold Increase Begins in 2026
Historically, any Indiana business with even $1 of personal property had to file a business personal property tax return. That changed in 2015, when the state introduced an exemption for businesses with less than $20,000 in personal property per county. Over time that threshold has increased, reaching $80,000 by 2024.
This year’s Senate Bill 1 (SB1) initially proposed increasing the exemption to $1 million for the 2025 assessment year and $2 million for 2026. However, House Bill 1427 (HB 1427) superseded this, keeping the threshold at $80,000 for 2025 and raising it to $2 million beginning with the 2026 assessment year.
Depreciation Floor Phased Out – With a Caveat
Under prior law, the assessed value of business personal property couldn’t fall below 30% of its acquisition cost. SB1 eliminates this 30% floor for assets placed in service after January 1, 2025, allowing businesses to more fully depreciate equipment for property tax purposes. However, this change does not apply to property located within existing Tax Increment Financing (TIF) districts, where the 30% floor remains in effect.
TIF is a tool that Indiana and many other states use to fund economic development or redevelopment projects. A TIF district essentially captures future increases in property tax dollars and reinvests them into the development project itself. Businesses are often able to monetize the value of future property tax dollars in order to offset upfront development costs. To maintain funding predictability, SB1 preserves the 30% floor for businesses operating within these allocated areas.
New Deduction for 2% Cap Properties
Indiana caps property taxes at 1%, 2%, or 3% of a property’s assessed value, depending on the property type:
| Tax Cap Category | Applies to… |
| 1% Cap | Homesteads (owner-occupied homes) |
| 2% Cap | Other Residential Property (i.e., rentals) Long-term Care Property Agricultural Land |
| 3% Cap | Nonresidential Property Business Personal Property |
SB1 introduces a new deduction for 2% cap properties, beginning with taxes payable in 2026. The deduction starts at 6% of the assessed value and grows to 33.4% for taxes payable in 2031. County auditors will apply this deduction automatically. We are still awaiting guidance from the Indiana Department of Local Government Finance regarding the treatment of 2% cap properties located within TIF districts.
Property Tax Credit for Homeowners
Also under SB1, all Indiana homeowners will receive a new property tax credit beginning in 2026. The credit equals 10% of their tax bill, capped at $300 annually, and will be applied automatically by county auditors.
Increased Supplemental Homestead Deduction
SB1 gives homeowners an increase in the supplemental homestead deduction. For taxes payable in 2025, the supplemental homestead deduction was equal to 37.5% of the assessed value that is not more than $600,000 and an additional 27.5% deduction of the assessed value that is more than $600,000. Beginning with taxes payable in 2026, the supplemental deduction will be 40% from assessed value and grows to 66.7% for taxes payable in 2031. This deduction will apply to all homestead scenarios, regardless of home value. The standard deduction previously in place will be reduced each year as the offsetting supplemental deduction occurs.
Potential Revenue Trade-Offs for Local Government
While these changes offer meaningful relief for taxpayers, the long-term impact on local government revenue remains uncertain. Since property taxes fund a significant share of local services, some municipalities may face budget gaps.
To address this, SB1 authorizes local governments to:
It’s possible that property tax savings may be offset by rising local income taxes – though how this balance plays out remains to be seen.
Facing a projected $2 billion budget shortfall over the next two years, Governor Braun and lawmakers were faced with difficult decisions which resulted in budgets cuts across the board. The Indiana Economic Development Corporation (IEDC), the state’s primary economic development agency, saw a nearly $42 million reduction in funding. Several key programs were defunded, including:
However, several strategic investments and structural reforms emerged. Senate Bill 306 makes the Film & Media Production tax credit assignable, and House Bill 1007 introduced a new tax credit for Small Modular Nuclear Reactor Manufacturing. House Bill 1601 offers incentives to support quantum computing research, advanced computing, and defense infrastructure investments. And House Bill 1461 creates a new railroad infrastructure tax credit.
IEDC and Innovation Development District Oversight
The IEDC’s annual tax credit cap was increased from $250 million to $300 million, while the minimum capital investment required for Innovation Development Districts (IDDs) was reduced from $2 billion to $750 million. Senate Bill 516 (SB516) also transferred oversight of the Certified Technology Park program to the newly created Office of Entrepreneurship and Innovation. In line with the Governor’s push for transparency, SB516 introduced several new accountability measures including a mandatory 30-day notice before the IEDC makes land purchases. Also a provision requiring the IEDC to invite the entire budget committee (not just a few members) to site tours where state assistance will be involved, and there are expanded reporting requirements for activities within IDDs.
In addition, Governor Braun ordered an independent forensic audit of the IEDC and its affiliates to ensure public accountability, asserting, “Transparency is essential for good government – and it’s what taxpayers deserve.”
With a new governor in office, Indiana’s legislative priorities shifted markedly. Under Governor Holcomb, economic development was the centerpiece; under Governor Braun, property tax relief has taken the lead. Whether these changes enhance Indiana’s attractiveness to out-of-state businesses remains to be seen.
In the meantime, we’re closely monitoring the evolving landscape and how these changes will impact businesses and communities throughout the state. Contact us for assistance navigating these changes and developments.
For a deeper dive into this year’s legislation, check out our Indiana Legislative Update: Key Bills & How the May Impact Your Business.