Larry DeBoer, Purdue University agricutural economist whose columns appear in Indiana newspapers.
Last year Indiana homeowners were hit with property tax bill
increases averaging 17 percent, an extraordinary increase. Will it happen again
in 2024? Let’s compare 2023 to what we know about 2024 so far, and take a
guess.
The pandemic economy caused home values to spike in
2021. Low mortgage rates and people’s desire for added living space increased
demand. Supply was limited by lagging home construction. Home prices rose
14 percent. County assessors captured those higher values in their 2022
assessments. Gross assessed values rose 16 percent. Those values were used for
tax bills in 2023.
Home prices continued to rise in 2022, before
higher mortgage rates had their effect. The average increase was 16 percent. We
don’t have statewide data for gross assessed values for 2024 yet, but the
increase could be 10 to 12 percent, less than last year’s rise.
Taxes are based on net assessed
value, which is the gross minus deductions. For taxes in 2023, the net assessed
value of homesteads rose 21 percent, even more than the 16 percent gross rise.
That’s because the $48,000 standard homestead deduction remained the same while
assessed values increased. The remainder after the deduction increased even
more, in percentage terms. Total net assessed value for all property—including
rental housing, farmland and business property—rose 15 percent.
Indiana’s Gateway system has already reported net
assessed values for 2024. For all property, net assessments will rise 6
percent, less than half of last year’s increase. The statewide increase for
homesteads is just 4 percent, way less than last year’s 21 percent. The main
reason is a policy change made by the General Assembly. Legislators increased
the supplemental homestead deduction from 35 percent to 40 percent of
assessments after the standard deduction. It’s a seemingly small change that
had a big effect.
Property tax rates are recalculated each year by
each local government. The revenue to be collected is the tax levy, which is
divided by assessed value to set the tax rate. Indiana places a maximum on each
unit’s levy, which increases by a statewide growth rate each year. Last year
the growth rate was 5 percent. This year the General Assembly limited that
increase to 4 percent.
Despite the maximum, last year the total levy
increased by 9 percent. That’s because some levies are outside the maximum levy
controls. Debt service to repay borrowing for big projects, and levies passed
by referendum, are not under the maximum. Last year those levies increased by
about 16 percent.
This year legislators restricted some referendum
levy increases to 3 percent. The total levy rise should be smaller than last
year, perhaps between 5 and 6 percent.
Last year total net assessed values rose 15
percent, the levy rose 9 percent, so the average property tax rate fell by 6
percent. That’s why homestead tax bills rose less than the net assessed value
rise. Tax rates for 2024 have been reported on the Department of Local
Government Finance’s website, in the county budget orders. The average rate
will fall slightly, by 0.4 percent.
Some homeowners have their property taxes capped by
Indiana’s circuit breakers, at 1 percent of their gross assessed
values. In 2023 the caps helped a little, because tax bills are based on net
assessments, while the caps are based on the gross. Since the net rose more
than the gross, more tax bills were limited by the caps.
That won’t happen in 2024. Because of the higher
supplemental deduction, gross assessed values will rise a lot more than net
assessments. Fewer homeowners will see their taxes limited by the caps.
Ironically, homesteads that remain capped will see the biggest percentage
increases. They’ll be charged 1 percent of gross assessed value, which will
likely see double-digit percentage hikes.
What’s the guess for 2024? The average homeowner
should see smaller increases in net assessed value than in 2023. Average tax
rates will change little, so tax bills on middle-valued homes should rise 3 to
4 percent. Tax bills on higher valued homes will increase more. Your local tax
rate changes will differ from the average, but homeowner tax bills in 2024
should rise a lot less than they did in 2023.