Indiana's Mortgage Deduction Repeal: What Replaced It and Why Your Bill Still Looks Different

Until 2023, Indiana homeowners could file a property tax mortgage deduction — a $3,000 AV reduction available to any homeowner with an outstanding mortgage on their principal residence. It was a small but universal benefit, and many Indiana homeowners had it on their tax bills for decades.

The 2023 General Assembly eliminated the mortgage deduction starting with 2023 property tax bills, replacing it with a larger homestead supplemental deduction. The political case was that the mortgage deduction was administratively complex (required mortgage filing) and redundant with the homestead structure. SB 1 in 2025 went further, expanding the supplemental deduction to make the net benefit larger for most homestead owners.

For homeowners who haven't paid attention to the change, the result is confusing: old paperwork references the mortgage deduction, current bills don't show it, and the math is meaningfully different. This post walks through what was repealed, what replaced it, and where the 2026 picture lands.

What the mortgage deduction was

Before 2023:

Available to: any Indiana homeowner with an outstanding mortgage on their primary residence
Amount: the lesser of $3,000, half of the assessed value, or the outstanding mortgage balance
How filed: with the county auditor, accompanied by a mortgage recording document
Effect: reduced taxable AV by up to $3,000

For a $200K Indiana homestead, the mortgage deduction reduced taxable AV by $3,000, translating to roughly $30–$70 in annual tax savings depending on the district rate.

The deduction was administratively annoying — required documentation of the mortgage, required re-filing if the mortgage was refinanced, and required deletion if the mortgage was paid off. Many homeowners had it on their bills for decades after their mortgage was satisfied because nobody updated the filing.

What replaced it

Indiana converted the mortgage deduction into an enhanced homestead supplemental deduction structure:

Element	Pre-2023	Post-2023	SB 1 (2026+)
Standard homestead deduction	$45,000	$45,000	$48,000
Supplemental deduction	Stepped: 35% / 25% / 15%	35% across more brackets	Expanded brackets, larger amounts
Mortgage deduction	$3,000 if mortgaged	Eliminated	Eliminated
Net effect for $200K homestead	~$45K + ~$35K + $3K = $83K	~$45K + ~$48K = $93K	~$48K + ~$80K = $128K

The 2026 numbers (SB 1) produce much larger total deductions for the typical homestead than the pre-2023 regime did, even accounting for the eliminated mortgage deduction.

For a $200K homestead:

Pre-2023 deductions: ~$83K, taxable AV $117K
2023–2024 deductions: ~$93K, taxable AV $107K
2026 deductions (SB 1): ~$128K, taxable AV $72K

Net effect: the average Indiana homestead has roughly 38% lower taxable AV in 2026 than in 2022, before accounting for any AV growth. Combined with AV growth, real taxable AV is up modestly but much less than gross AV would suggest.

What homeowners still see in 2026

Three lingering issues from the mortgage deduction era:

1. Old tax bills still in records

If you're researching property history (for a sale, refinance, or estate matter), pre-2023 tax bills show mortgage deduction line items. These are historical, not current.

2. Old auditor records may need cleanup

The county auditor's deduction records were "ported" forward when the mortgage deduction was eliminated — the supplemental deduction structure absorbed the change. But if your auditor's records are messy (multiple deduction lines, conflicting amounts), it's worth a phone call to clean up the file.

3. Misinterpretation of "the bill went down because I refinanced"

A common confusion: a homeowner refinances, the mortgage balance changes, but the tax bill doesn't reflect the new balance because there's no longer a mortgage deduction at all. The bill being lower in 2026 vs. 2022 is largely the SB 1 changes, not anything related to the refinance.

How the supplemental deduction actually works in 2026

The supplemental deduction is automatic for any property with a filed homestead deduction. It's calculated as a percentage of net AV after the standard deduction. Under SB 1's 2026 structure (illustrative; verify with the DLGF):

35% of net AV under a certain threshold (typically the first $X)
25% of net AV between certain thresholds
15% above

The SB 1 expansion raised the brackets and percentages, producing larger deductions for most homesteads, particularly mid-range value homesteads.

For a $200K homestead:

Step	Value
Gross AV	$200,000
Standard deduction	−$48,000
Net AV after standard	$152,000
Supplemental @ ~40% (illustrative blended rate)	−$60,800
Net AV after deductions	$91,200

The exact supplemental calculation depends on the specific bracket structure, which is updated annually. The DLGF brochure for the relevant year is authoritative.

Note

You don't have to file separately for the supplemental deduction. Filing the standard homestead deduction (Form HC10) automatically qualifies you for the supplemental. Many homeowners don't realize this and ask their auditor "how to file the supplemental" — there's nothing to file separately.

What this means for net property tax in 2026

For a typical Indiana homestead:

Lower taxable AV thanks to expanded standard and supplemental deductions
No mortgage deduction, which slightly offsets the gain
Net deductions are larger than pre-2023 by a meaningful margin
Combined with the SB 1 $300 homestead credit, most homestead bills are flat to lower

For a homestead in a cap-bound district (cap is the binding constraint):

The deduction expansion is irrelevant — the cap is set against gross AV, not net AV
Only the $300 SB 1 credit reduces the cap-bound bill

For a homestead not in a cap-bound situation:

The deduction expansion does matter — net AV × rate is the bill
Lower net AV from expanded deductions reduces the bill directly

Common confusion: "I sold my house and the new owner's bill is different"

Mortgage deduction was tied to the owner having a mortgage. When a property sold, the deduction often had to be re-filed by the new owner. With the deduction eliminated, this transition issue goes away — new owners get the same supplemental deduction structure as prior owners, automatically based on the homestead filing.

If you sold a property in 2023+ and your bill in the year of sale was higher than the prior owner's, the most likely explanation is incomplete homestead deduction filing by the new owner, not the mortgage deduction.

What to do

Pull your 2026 tax bill (or your prior-year bill if 2026 hasn't issued yet) from your county treasurer.
Confirm the deduction line items: standard homestead, supplemental homestead, any others (Over-65, mortgage if you somehow still have it, blind/disabled, veteran).
If you see a mortgage deduction, that's likely a stale record. Contact your county auditor to clean up.
If your supplemental deduction looks small relative to your AV, verify your standard deduction is filed correctly — supplemental flows from standard.
Don't confuse old paperwork with current rules. Pre-2023 bills are historical context, not current state.