Last year, Indiana enacted SB-1 (2025), a broad property tax reform package that included a new assessed-value deduction for certain properties subject to Indiana’s 2% constitutional property tax cap: Indiana SB 1: What Multifamily Owners Need to Know About the Property Tax Deduction. For multifamily owners, the legislation created a potentially significant benefit: a deduction that begins at 6% of assessed value and gradually increases to 33.4%.
At the time the legislation was enacted, there were important questions about how the new deduction would work in practice—particularly how it would interact with Indiana’s existing 2% property tax cap.
With the first year of the deduction now being implemented, we have more clarity. The deduction is appearing on 2025-pay-2026 tax bills, and the General Assembly left the deduction and its scheduled phase-in intact during the 2026 legislative session.
For multifamily owners, the key question is increasingly not whether the deduction will be implemented, but when it will actually produce meaningful tax savings.
The Deduction Is Now Being Implemented
SB-1 added Indiana Code § 6-1.1-12-47, which provides an assessed-value deduction for eligible property subject to the 2% tax cap. The deduction phases in as follows:
| Assessment Year | Payable Year | Deduction |
|---|---|---|
| 2025 | 2026 | 6% |
| 2026 | 2027 | 12% |
| 2027 | 2028 | 19% |
| 2028 | 2029 | 25% |
| 2029 | 2030 | 30% |
| 2030 and after | 2031 and after | 33.40% |
The first 6% deduction is now being applied to eligible properties on 2025-pay-2026 tax bills. No application is required; county auditors are responsible for identifying eligible properties and applying the deduction.
The Indiana Department of Local Government Finance (“DLGF”) has also confirmed that the deduction will continue to phase in over the coming years and has directed county auditors to continue applying it to eligible properties.
A 6% Deduction Does Not Necessarily Mean 6% Tax Savings
The most important issue for multifamily owners remains the interaction between the new deduction and Indiana’s constitutional property tax caps.
The deduction reduces a property’s net assessed value, while Indiana’s 2% circuit-breaker limitation is based on the property’s gross assessed value. As a result, receiving the deduction does not necessarily mean an owner will see a corresponding reduction in taxes.
Consider a multifamily property with a $10 million gross assessed value in a taxing district with a 2.2% tax rate. The 6% deduction reduces its net assessed value to $9.4 million. Applying the 2.2% tax rate produces taxes of approximately $206,800. But 2% of the property’s $10 million gross assessed value is $200,000. Assuming no additional amounts outside the cap, the circuit breaker still produces the lower tax liability.
In that situation, the 6% deduction appears on the tax bill but does not actually reduce the taxes paid.
The Bigger Benefit May Still Be Ahead
The limited impact of the initial 6% deduction does not mean the deduction lacks value. It doubles to 12% for 2026-pay-2027 and eventually increases to 33.4%.
As the deduction grows, more properties will reach the point where taxes calculated on their reduced net assessed value fall below the 2% cap. The approximate break-even tax rates illustrate the effect:
| Deduction | Approximate Break-Even Tax Rate |
|---|---|
| 6% | 2.13% |
| 12% | 2.27% |
| 19% | 2.47% |
| 25% | 2.67% |
| 30% | 2.86% |
| 33.40% | 3.00% |
For example, a property in a 2.40% taxing district may receive little benefit at 6% or 12%. At a 19% deduction, however, applying the 2.40% rate to the reduced net assessed value produces an effective rate of approximately 1.944% of gross assessed value. At that point, the deduction begins producing actual savings below the ordinary 2% cap.
The precise calculation can be more complicated because of voter-approved referendum amounts and other credits or deductions, but the basic relationship illustrates why the later stages of the phase-in may be much more significant for multifamily owners.
Local tax rates and assessments will also continue to change. Owners therefore should not assume that a larger deduction necessarily means their total tax bill will decline by the same amount. The actual benefit depends on the interaction among assessed value, the deduction, the applicable tax rate, and the circuit breaker.
Is the Deduction Here to Stay?
One question we have heard from multifamily owners is whether the deduction will remain in place long enough to reach the larger percentages scheduled for future years. In other words, they want to know if the law will be changed or repealed.
Any future General Assembly can amend Indiana’s property tax laws, so there is no guarantee that the deduction will remain unchanged indefinitely. But there is currently little reason to assume it is going away.
The General Assembly revisited Indiana’s property tax laws extensively during the 2026 legislative session but did not repeal or reduce the deduction under Indiana Code § 6-1.1-12-47. We are also not aware of legislation introduced during the 2026 session specifically proposing to repeal it.
Following the session, DLGF expressly advised county officials that the deduction will continue to phase in over the next several years and directed auditors to continue applying it to eligible properties.
For now, multifamily owners should plan around the statutory phase-in schedule while continuing to monitor future legislative developments.
What Should Multifamily Owners Do Now?
Owners should first confirm that the 6% deduction has been applied to each eligible property on their 2025-pay-2026 tax bills. They should then determine whether the deduction is currently producing actual savings or whether the 2% cap continues to control their liability.
Owners should also look ahead. A property receiving little or no benefit from the 6% deduction this year may be positioned very differently when the deduction reaches 12%, 19%, or 25%. For owners with multiple Indiana properties, modeling the phase-in across the portfolio can help identify which properties are likely to benefit first and the potential savings over the next several years.
The new deduction also does not eliminate the importance of monitoring and appealing assessments. Both the deduction and the constitutional tax cap are tied to assessed value, and an excessive assessment can continue to increase a property’s tax liability.
Bottom Line
The first year of implementation provides welcome clarity regarding the new SB-1 deduction for 2% cap properties. The deduction is being applied, its statutory phase-in remains intact, and Indiana officials are directing counties to continue implementing it.
For multifamily owners, understanding where each property falls relative to that threshold will be key to determining the actual value of SB-1 over the coming years.
Articles are published by Jones Pyatt Law, LLC and are made available for informational and educational purposes only. They are not considered legal advice. By viewing articles published on this website, you agree that there is no attorney-client relationship between you and Jones Pyatt Law, LLC. The articles should not be used as a substitute for competent legal advice from a licensed attorney. Please consult an attorney for any specific legal questions you may have.