If you own or operate a Low-Income Housing Tax Credit (LIHTC) property in Indiana, you’ve likely heard the term PILOT – Payment in Lieu of Taxes. As the term suggests, the concept is that the owner of the LIHTC property makes a negotiated payment to the local government in lieu of paying the typical real estate taxes for a LIHTC property.
In short, the LIHTC property is exempt from real property taxes and instead the owner makes a PILOT to the local government.
There are several nuances and issues to navigate in these deals.
PILOT Eligibility
Indiana law allows LIHTC properties to be eligible for property tax exemption when three basic conditions are met:
1. The property was constructed, rehabilitated, or acquired to provide housing for income-qualified residents under the federal LIHTC program.
2. The property is subject to an extended use agreement, administered by the Indiana Housing and Community Development Authority (IHCDA).
3. The owner of LIHTC property has entered into a PILOT agreement.
Conditions 1 and 2 apply to virtually every LIHTC property. Condition 3 is met when the owner of the LIHTC property enters into a PILOT agreement with the local government.
Importantly, the owner must also apply for property tax exemption with the county assessor and have the exemption approved by the county property tax assessment board of appeals (PTABOA) for the PILOT agreement to work.
What a PILOT Really Is (and What It Isn’t)
A PILOT is not a standard property tax bill. Instead, it is a negotiated payment between the property owner and the local government that replaces traditional property taxes.
Key points owners should understand:
- A PILOT is voluntary—it requires owner approval.
- It is established through a local ordinance adopted by the city, town, or county.
- Once adopted, the ordinance stays in place unless it is modified or repealed, which also requires the owner’s consent.
The PILOT process requires that owners work with the local jurisdiction to obtain approvals. Not all local governments have executed PILOT agreements, and some will not engage. Other local governments have well-established PILOT programs.
PILOTs are intended to support affordable housing by providing a predictable expense that would otherwise be paid in the form of property taxes. This helps owners and operators with their pro forma for the compliance period. It also helps IHCDA, investors, and lenders who are underwriting the project have more certainty as to real estate tax burden for the project, which can fluctuate year over year under traditional LIHTC assessment and taxation.
PILOTs also provide the local government with a predictable revenue stream. Owners also need to be aware of the approvals required to implement a PILOT agreement and the requirement that the LIHTC property apply for property tax exemption to make the agreement work.
PILOT v. Taxes
If you are developing LIHTC property in Indiana, consider whether a PILOT arrangement is right for your deal.
JPL has experience handling the PILOT process, the exemption process and helping clients navigate whether a PILOT makes sense for a particular project. If you have questions about LIHTC property tax assessment or PILOTs, Jones Pyatt Law can provide a property-specific analysis and advice on next steps. Contact us today if we can assist you on how to handle property taxes on your next LIHTC deal.