Buried in SEA 1's local income tax provisions is a tool most Indiana homeowners have never heard of: a county local income tax rate of up to 0.3% that can be used for exactly one purpose — reducing homestead property tax bills — and that counties may adopt only during a narrow 2026–2027 window before the authority terminates on December 31, 2027.
If you have read our coverage of the replacement LIT, stop: this is a different tax, with a different job. This post explains what the homestead-relief LIT is, how it differs from the replacement LIT that has dominated county council debates, what it would do to a homestead bill, and where adoption stands as of July 2026.
What SEA 1 Actually Created
Three independent analyses agree on the shape of the provision. Barnes & Thornburg's alert on SEA 1's LIT changes states that a county fiscal body "may adopt a local income tax to reduce the property tax liability for homesteads," and that the authority terminates on December 31, 2027. Porter County's SEA 1 briefing describes it as "a Homestead property tax relief LIT of up to 0.3%," available to implement "in 2026 and 2027 (expires 12/31/2027)." Baker Tilly's analysis of SEA 1's LIT restructuring covers the same provision within the broader overhaul.
The essentials:
- Who adopts it: the county fiscal body — county council, or the City-County Council in Marion County.
- Rate ceiling: up to 0.3% on local income.
- Use of proceeds: homestead property tax relief only. Unlike almost every other LIT rate, this money does not fund government operations — it flows back out as credits against homestead bills.
- Window: adoption is available only in 2026 and 2027; the authority expires December 31, 2027.
This Is Not the Replacement LIT
The LIT story most counties have been living since mid-2025 is the replacement LIT — the authority SB 1 gave counties, effective July 1, 2025, to impose up to 1.2% to backfill the operating revenue the levy freeze took away from counties, cities, schools, and libraries. We track who imposed it in the county-by-county scoreboard and covered Marion County's decision in detail.
The two taxes move money in opposite directions from a homeowner's perspective:
| Replacement LIT | Homestead-relief LIT | |
|---|---|---|
| Ceiling | Up to 1.2% | Up to 0.3% |
| Purpose | Backfills frozen property tax levies — funds local government operations | Funds credits that reduce homestead property tax bills |
| Effect on your property tax bill | None — your bill stays the same; your paycheck shrinks | Lowers it — the LIT proceeds come back as homestead relief |
| Effect on your income tax | Increase | Increase |
| Adoption window | Authority began July 1, 2025 | 2026–2027 only; expires 12/31/2027 |
| Net for a homestead owner | Pay more overall (income tax up, property tax flat) | A swap: income tax up, property tax down |
Both stack inside SEA 1's restructured LIT architecture, which carries a combined ceiling of 2.9% once the new framework — county rates, municipal rates for cities of 3,500-plus, and fire/EMS and township allocations — fully takes hold with 2028 budgets. The broader restructuring is covered in our SB 1 LIT explainer.
It Is Not the $300 Credit, Either
One more disambiguation. Every Indiana homestead already receives SEA 1's supplemental homestead credit — 10% of the tax bill, capped at $300 — automatically, statewide, with no county action required. Our credit walkthrough covers those mechanics. The homestead-relief LIT is a county-optional layer on top of that: a county that adopts it funds additional relief for its own homesteads, financed from its own residents' income rather than from the state.
What It Would Do to a Homestead Bill
The mechanics are a swap, not a giveaway. The county collects up to 0.3% on local income, and the statute directs those proceeds to reducing homestead property tax liability — in practice, an additional credit line on homestead bills, on top of deductions, the caps, and the 10%/$300 credit. How large that credit is for any given home depends on how much LIT revenue the county's income base generates relative to its homestead tax base, and on the allocation method the county's ordinance and DLGF guidance apply. We are not going to publish invented dollar examples: until a county adopts a rate and certifies a distribution, no honest per-household figure exists.
The distributional logic, though, is knowable. Relief flows only to homesteads, while the LIT falls on income earners broadly — so the design favors owner-occupants (especially retirees with modest incomes and paid-off homes) and asks renters and high-income households to fund relief they do not directly receive. That trade-off is the same fault line we mapped in the replacement LIT debates, pointed in the opposite direction.
Who Has Adopted It?
As of early July 2026, we could not verify any Indiana county that has adopted the homestead-relief rate — searches of mid-2026 news coverage surface plenty of replacement-LIT action but no reported homestead-relief adoptions. The authoritative check is the Department of Revenue's county income tax rate listing (Departmental Notice #1), which lists every county's current LIT rate, together with the DLGF's certified local income tax reports posted on its county-specific information pages; a homestead-relief adoption would appear in those once certified.
Note
County LIT decisions cluster around the fall budget season. If your county council is going to take this up for 2027 — the last year the window is open — the debate will surface in the same August–October hearings that decide levies and replacement LIT rates. Our guide to the fall 2026 budget hearings covers how to follow and testify.
The Window Is Short — and Closing
The design is explicitly temporary: adopt in 2026 or 2027, and the authority terminates December 31, 2027 — a bridge for the years when SEA 1's homestead deduction phase-in is still ramping up. What we could not verify, and therefore will not assert: whether relief funded by a late-window adoption continues onto later bills, or exactly when a given county's credits would first print. Those turn on adoption timing and DLGF certification — questions for your county auditor once an ordinance actually passes.
For homeowners, the practical posture is simple. You cannot adopt this tax; your county council can. If your bills are painful and your county has LIT headroom, this is the one SEA 1 lever built purely for homestead relief — and after 2027, it is gone.
Verify What Your County Has Done
Before you assume relief is or is not coming, check the facts for your own parcel and county. Verify your homestead deduction status, assessed value, and current bill composition with our Property Lookup, and confirm your county's LIT rate in the DOR's Departmental Notice #1 — if a homestead-relief credit ever appears on your bill, you will want to know it was applied correctly.