Most Indiana homeowners experienced SEA 1 for the first time this spring as a line on the bill: the 10 percent credit worth up to $300. But the credit is the simple part of the law. The structural part — a six-year rebuild of how homestead deductions work — is just getting started, and 2027 is the year the rebuild becomes visible in the math.
Here is what changes for taxes payable in 2027, why the legislature designed it this way, and what it means for a typical homestead.
The six-year plan in one paragraph
As Purdue agricultural economist Larry DeBoer lays out in his Capital Comments column "Property Tax Reform: Phasing Out, Phasing In", SEA 1 (2025) phases its deduction changes in over six years, through 2031. The standard homestead deduction — the familiar flat deduction, currently $48,000 — phases out entirely. The supplemental homestead deduction — a percentage of the value left after the standard deduction — phases up until it reaches two-thirds (66.7 percent) of homestead value. Alongside it, a new deduction for other residential property and farmland phases up to one-third (33.4 percent, per DeBoer) by 2031. The flat-dollar era ends; the percentage era begins.
What specifically changes in 2027
Two moves happen at once for taxes payable in 2027:
| Year | Standard deduction | Supplemental deduction |
|---|---|---|
| 2026 (current bills) | $48,000 | 40% of remaining AV |
| 2027 | $40,000 | 46% of remaining AV |
| ... 2028-2030 | continues stepping down each year | continues stepping up each year |
| 2031 (end state) | $0 — fully phased out | 66.7% of homestead AV |
Per the Purdue analysis: in 2026 the supplemental deduction rose to 40 percent; in 2027 it rises to 46 percent, and the standard deduction begins its phase-out, dropping from $48,000 to $40,000. The intermediate steps continue each year until 2031, when the standard deduction is gone and the supplemental deduction reaches 66.7 percent. (DeBoer's column gives the 2026, 2027, and 2031 values explicitly; the DLGF will publish the precise intermediate-year parameters as each cycle approaches.)
The $300 homestead credit — 10 percent of the homestead bill, capped at $300 — continues alongside all of this. So does the repeal of the mortgage deduction, which already washed through bills before SEA 1's restructuring began.
Why restructure at all?
The flat $48,000 standard deduction was worth proportionally more to lower-value homes — $48,000 off a $120,000 house removes 40 percent of its value; off a $480,000 house, 10 percent. A pure percentage deduction treats every homestead the same in relative terms. The legislature chose to migrate from one design to the other gradually rather than in a single year, precisely to avoid the kind of one-cycle shock that this year's ag building reassessment delivered to farmers.
The transition also means the winners and losers shift gradually by price tier. As the flat deduction shrinks and the percentage grows, lower-value homesteads slowly give up their structural advantage while every homestead's taxable share of value falls. Where the lines cross for your house depends on your AV and your local tax rate.
A worked example: $250,000 homestead, 2026 vs. 2027
Note
This example is illustrative only. It holds assessed value and the tax rate constant to isolate the deduction change. Your actual 2027 bill will also reflect AV trending, local levy decisions, the 2027 levy growth quotient, and your district's rate.
Take a homestead assessed at $250,000, in a district with a $1.00 per $100 tax rate, both years.
2026 (taxes payable this year):
- Standard deduction: $48,000 → remaining AV $202,000
- Supplemental deduction (40%): $80,800
- Taxable AV: $121,200
- Gross tax at $1.00/$100: $1,212.00
- SEA 1 credit (10%, max $300): -$121.20
- Net: $1,090.80
2027 (next year's parameters):
- Standard deduction: $40,000 → remaining AV $210,000
- Supplemental deduction (46%): $96,600
- Taxable AV: $113,400
- Gross tax at $1.00/$100: $1,134.00
- SEA 1 credit (10%, max $300): -$113.40
- Net: $1,020.60
The supplemental increase outruns the standard decrease at this price point, so taxable AV falls about 6.4 percent. Run the same math on a $120,000 homestead and the result is tighter — the $8,000 lost from the flat deduction is a bigger share of a small AV, while the 6-point supplemental gain applies to a smaller remainder. The phase-in is least generous, in relative terms, at the bottom of the market and most generous toward the top. That distributional tilt is one reason the homestead restructuring keeps drawing attention at the interim study committee.
The caveat that swallows the example: rates are not constant
A deduction does not cut the amount local governments levy — it shrinks the taxable base the levy is spread across. When every homestead's taxable AV drops, tax rates drift upward to raise the same certified levies, shifting share toward rental property, farmland, and business property — which is exactly why SEA 1 pairs the homestead changes with the new one-third deduction for other residential property and farmland phasing in on a parallel track, and why higher rates push more parcels into circuit breaker cap territory.
So treat the worked example as the deduction effect, not a bill forecast. The full 2027 picture adds three more moving parts:
- Your 2027 assessed value — Form 11 notices arriving next spring, with several counties also beginning cyclical reassessment
- Local levies — constrained by the maximum levy growth quotient certified this summer
- Local income tax decisions — as counties weigh replacement LIT to offset property tax relief, per the 2026-2028 LIT transition
What homeowners should do between now and the 2027 bills
Verify your homestead deduction is actually on file. The restructuring makes the homestead status more valuable every year — by 2031 it is the difference between a 66.7 percent deduction and a one-third deduction. If you bought, refinanced into an entity, or changed title in 2025-2026, confirm the deduction carried over. Check your parcel through the property lookup and our homestead exemption guide.
Watch the credit cap. The 10 percent credit maxes out at $300, which corresponds to a $3,000 homestead bill. As deductions shrink taxable AV, more homeowners' bills fall below that line, making the credit a full 10 percent for more people each year.
Seniors: stack what stacks. The over-65 deduction and circuit breaker provisions interact with the new structure — see our senior and disabled credits guide before assuming the SEA 1 changes replace anything you already claim.
If your 2026 AV is wrong, fix it now. Every percentage-based deduction makes an inflated AV more expensive to ignore, because errors compound through the supplemental percentage. The Form 130 deadline for the 2026 cycle is June 15 in most counties.
Tip
A percentage deduction changes appeal economics. Under the old flat deduction, knocking $20,000 off your AV reduced taxable value by $20,000. In 2027, that same $20,000 reduction shrinks taxable AV by only $10,800 (the 46 percent supplemental absorbs the rest) — but by 2031 the math flips entirely: with a 66.7 percent deduction, every AV dollar you win back is only a third of a taxable dollar. Appeals still matter; they just matter most for the share of value above the deductions and for cap calculations, which run on gross AV.
The bottom line
2027 is the pivot year: the first year the standard deduction shrinks and the second step of the supplemental climb. For most mid-priced homesteads the deduction math alone modestly lowers taxable value versus 2026 — but reassessment, levy growth, and local rate moves will decide whether the bill itself follows. The structure is now predictable through 2031; the local variables are not. We will publish the precise 2027 parameters and county-by-county effects when the DLGF certifies them.