Indiana is one of only a handful of states with a hard, constitutional ceiling on property tax bills. Article 10, Section 1 of the Indiana Constitution caps your annual property tax at 1%, 2%, or 3% of your gross assessed value depending on what kind of property you own. The caps are known formally as "circuit breakers" because they trip automatically — once your gross tax exceeds the cap, the excess is simply wiped off the bill.
For homeowners, the circuit breaker is often the single most important number on the tax bill — more important than the local rate, more important than SB 1's new credits, and often more important than the homestead deduction itself. This guide explains exactly how each tier works, why two identical houses can hit the cap differently, and what "tax cap loss" means for the local governments on the other side of the equation.
The Three Tiers
Every parcel in Indiana falls into one of three cap categories based on its property classification:
| Cap tier | Property types covered | Cap applied to |
|---|---|---|
| 1% | Owner-occupied homestead (primary residence) | Gross AV |
| 2% | Other residential (rentals, second homes), agricultural land, long-term care facilities | Gross AV |
| 3% | Commercial, industrial, personal property, vacant land, non-homestead developed | Gross AV |
The cap applies to gross assessed value — not net AV after deductions. This is a critical distinction. A homestead worth $250,000 with $100,000 in deductions has a 1% cap of $2,500, not $1,500. Deductions stack on top of the cap; they do not reduce the cap's reference value.
How the Cap Calculation Actually Works
Walk through this in order on any Indiana TS-1 statement and you can predict your bill within a dollar.
- Start with gross assessed value (land + improvements before any deductions)
- Apply your homestead and supplemental deductions to get net AV
- Multiply net AV by your local tax rate (per $1,000) to get gross tax
- Compute your cap ceiling (1%, 2%, or 3% × gross AV)
- The bill is the lesser of gross tax or the cap ceiling
If the cap ceiling is lower than the gross tax, the difference is a circuit breaker credit — you don't pay it, and the local taxing units lose that revenue (more on this below).
Worked Example: 1% Homestead Cap Binding
A primary residence in Marion County with a gross AV of $200,000:
- Cap ceiling: $200,000 × 1% = $2,000
- Standard homestead deduction: −$48,000
- 40% supplemental deduction: −$60,800
- Net AV: $91,200
- Marion County rate (illustrative): $30/$1,000
- Gross tax: $91,200 × 0.030 = $2,736
- Bill is the lesser of $2,736 or $2,000 = $2,000
- Circuit breaker credit: $736
The owner pays $2,000. The taxing units (city, county, schools, library, etc.) collectively lose $736 of expected revenue.
Worked Example: Cap Not Binding
The same $200,000 homestead in Hamilton County at a $20/$1,000 rate:
- Cap ceiling: $2,000
- Net AV after deductions: $91,200
- Gross tax: $91,200 × 0.020 = $1,824
- Bill is the lesser of $1,824 or $2,000 = $1,824
- No circuit breaker credit; cap doesn't bind
In this case the homestead deduction is the binding constraint, not the cap. Whether your bill is determined by deductions or by the cap depends entirely on the local tax rate. Counties with higher rates produce more cap-bound bills.
Why Two Identical Houses Can Hit the Cap Differently
Two physically identical homes — same square footage, same condition, same neighborhood — can have very different relationships to the cap because of three factors:
1. Property Class Code
The cap tier is determined by the four-digit property class code on your Form 11 notice. A house coded as a homestead (residential 510) gets the 1% cap. The same physical structure coded as a rental (residential 511) gets the 2% cap. A miscoded primary residence on the 2% tier pays double the cap-bound bill.
2. Local Tax Rate
Counties with high cumulative rates (Marion's central townships, Lake's industrial-heavy districts) produce cap-bound bills on relatively modest properties. Low-rate counties (most of rural Indiana) rarely trigger the cap on homesteads at all.
3. Mixed-Use Properties
A property used partly as a primary residence and partly as a rental gets a prorated cap. A duplex where the owner lives in one unit gets 1% on the homestead-occupied half and 2% on the rental half, calculated as a weighted average of gross AV.
The 1% cap only applies to property used as a primary residence. If you spend more than half the year elsewhere — even if you still own the Indiana property — your homestead status (and therefore the 1% cap) is at risk. Auditors increasingly cross-reference voter registration, vehicle registration, and out-of-state homestead claims.
What Property Type Falls Where
The classifications get specific. A few common edge cases:
- Manufactured / mobile homes on owned land used as a primary residence: 1% homestead cap
- Agricultural land used for farming: 2% cap (note: ag land is also assessed by soil productivity, not market value — see our farmland values post)
- Apartments (4+ units): 2% cap
- Single-family rentals: 2% cap
- Commercial property: 3% cap
- Industrial real and personal property: 3% cap
- Vacant lots (no homestead): 3% cap, even if zoned residential
- Long-term care facilities (nursing homes, assisted living): 2% cap
The full classification list is maintained by the Indiana Department of Local Government Finance and updated annually.
Tax Cap Loss: The Other Side of the Equation
Every dollar of circuit breaker credit a homeowner receives is a dollar of revenue a local taxing unit doesn't collect. Statewide, tax cap losses exceeded $1.2 billion in 2025, concentrated heavily in high-rate counties. Marion County alone absorbed over $300 million in cap losses.
This matters for two reasons:
Local Service Pressure
Cap losses translate directly to fewer dollars for schools, public safety, libraries, and parks. Local governments respond by raising their levies up to the maximum legally allowed (the SB 1 levy freeze is a one-year break from this dynamic, ending in 2027), pursuing referenda, or cutting services.
Cap Loss as an Equity Indicator
Counties with high cap losses are typically counties with high tax rates relative to their AV — which often means counties that have leaned heavily on property tax to fund local government. The flip side: cap losses also signal that a substantial share of homeowners would be paying more if the constitutional ceiling didn't exist.
For data analysts, cap loss per parcel is a useful proxy for tax rate stress and a leading indicator of where local levy referenda will appear on future ballots.
When Appealing the AV Doesn't Lower the Bill
This is the single most-misunderstood corollary of the cap: if your bill is at the cap, lowering your assessed value won't lower your bill — at least not until the AV drops far enough that gross tax falls below the cap ceiling.
Walk through it again with the Marion County example. Net AV is $91,200, gross tax is $2,736, cap is $2,000, bill is $2,000. If you appeal and get the AV reduced to $180,000:
- Cap ceiling: $180,000 × 1% = $1,800
- Net AV after deductions: $71,200
- Gross tax at $30/$1,000: $2,136
- Bill: lesser of $2,136 or $1,800 = $1,800
You saved $200 — but the savings came from the cap dropping by $200, not from the gross tax dropping by $600. The remaining $400 of "savings" was absorbed by the cap.
For cap-bound parcels, an appeal is still worthwhile because the cap moves with AV — but the leverage is one-to-one with the cap (1%, 2%, or 3% of the AV reduction), not with the gross tax. Use Property Lookup to confirm your cap status before deciding whether an appeal will pay off.
Quick Self-Check
To determine your status in 60 seconds:
- Pull your most recent tax bill
- Find the gross AV (land + improvements before deductions)
- Multiply by 1% (homestead), 2% (other residential/farmland), or 3% (commercial)
- Compare to your net tax due
If those numbers are within a few dollars of each other, you are at the cap. The cap is doing the work. If your net tax is well below the cap ceiling, your deductions and tax rate are the constraints.
Find Your County
- Marion County — high-rate central townships
- Lake County — heavy cap losses from industrial restructuring
- Hamilton County — low-rate suburbs, cap rarely binds on homesteads
- Allen County — Fort Wayne, mixed cap-binding patterns