There's a new property tax break for Indiana landlords and farmland owners, and the best part is that you don't have to apply for it. The catch is that you do have to check that you actually got it.
Senate Bill 1 from the 2025 session created a new deduction for property in the 2% cap tier, the same tier that holds non-homestead residential and agricultural land. It begins with the 2025 assessment (taxes payable in 2026) and grows every year on a fixed statutory schedule through taxes payable in 2031, under IC 6-1.1-12-47. Here's exactly who it covers, how it scales, and what to confirm on your bill.
Who qualifies
The deduction applies to property that sits in Indiana's 2% circuit-breaker tier:
- Non-homestead residential — rental houses, duplexes, apartment buildings, second homes
- Agricultural land
- Long-term care property
The statute defines eligible property as everything that gets the 2% circuit-breaker credit under IC 6-1.1-20.6-7.5(a)(2) through (a)(4): residential property that is not a homestead, long-term care property, and agricultural land. This is the same group of property that the constitutional "1-2-3" cap limits to 2% of assessed value. (Homesteads are capped at 1%; commercial and personal property at 3%.) For the full cap framework, see Indiana property tax caps and circuit breakers explained.
Where the line falls
The deduction tracks the cap tier, not the use you might describe in conversation. A single-family house you live in is a homestead in the 1% tier and is not the target of this deduction. The same house rented to a tenant drops into the 2% tier and qualifies. Apartment buildings, duplexes, and second homes that are not your principal residence all sit in the 2% tier. Agricultural land, the dirt under a working farm, qualifies as well, though farm dwellings and outbuildings can be classed differently and should be checked individually.
The practical takeaway: what controls eligibility is the property class code the county has assigned, which determines the cap tier. If the code is right, the deduction follows automatically. If the code is wrong, the deduction is silently lost, which is the single most important thing to verify.
The phase-in schedule
The deduction is a percentage of assessed value, taken after any other deductions that apply, and IC 6-1.1-12-47(c) sets the exact percentage for each year:
| Assessment year | Taxes payable | Deduction (% of AV) |
|---|---|---|
| 2025 | 2026 | 6% |
| 2026 | 2027 | 12% |
| 2027 | 2028 | 19% |
| 2028 | 2029 | 25% |
| 2029 | 2030 | 30% |
| 2030 and later | 2031 and later | 33.4% |
The 33.4% rate continues for every assessment after 2030, so on qualifying property a third of assessed value is sheltered for taxes payable in 2031 and beyond.
Worked example (hypothetical)
Take a hypothetical rental duplex with a gross assessed value of $250,000, sitting in the 2% tier with no other deductions. The deduction reduces the net assessed value before the local rate applies. Holding the assessment steady, here is how the sheltered value grows under the statutory schedule.
| Taxes payable | Deduction % | AV sheltered | Net AV |
|---|---|---|---|
| 2026 | 6% | $15,000 | $235,000 |
| 2027 | 12% | $30,000 | $220,000 |
| 2028 | 19% | $47,500 | $202,500 |
| 2029 | 25% | $62,500 | $187,500 |
| 2030 | 30% | $75,000 | $175,000 |
| 2031 | 33.4% | $83,500 | $166,500 |
At a hypothetical tax rate of $2.00 per $100 of net assessed value, the bill drops by $300 for taxes payable in 2026 ($15,000 x 2%) and by $1,670 for taxes payable in 2031 ($83,500 x 2%). That parcel stays under its 2% cap ($5,000, or 2% of $250,000 gross AV) in every year, so the full reduction reaches the bill. Your actual numbers depend on your parcel's assessed value, your district's rate, and whether the parcel is at its cap, but the shape, a small benefit now widening sharply over five years, holds across qualifying property.
It's applied automatically, but verify it
County auditors apply this deduction automatically. There is no application form, no deadline you have to beat, and no paperwork to file. That is genuinely how SB1 set it up.
Warning
Automatic does not mean guaranteed. Auditor systems make errors, and a parcel coded into the wrong tier won't receive the deduction it's owed. Pull your bill and confirm the deduction line item actually appears for each rental and farmland parcel you own.
What to look for on the bill
Open your tax statement and check the deductions section. You are looking for a line tied to the 2%-cap (non-homestead residential / agricultural) deduction reducing your net assessed value. If it's missing on a parcel you know qualifies, the most common culprit is a property class code that put the parcel in the wrong tier. A rental miscoded as commercial, for example, lands in the 3% tier and won't get this 2% deduction at all.
How it interacts with the 2% cap
This is where owners get confused, so be precise about the two mechanisms:
- The deduction lowers your net assessed value before the tax rate is applied. Less value to tax means a lower bill.
- The 2% cap is a ceiling on the final bill as a share of gross assessed value.
They stack in your favor. The deduction reduces what you're taxed on; the cap still backstops the total. In high-rate jurisdictions, where many properties were already pinned at the cap, the deduction's benefit may be muted until rates or values shift, but for property below the cap, it's a direct cut.
Note
Whether the deduction lowers your bill this year depends on whether your parcel is already at its 2% cap. Below the cap, the deduction is a direct reduction in taxable value. At the cap, the benefit may not surface until rates or assessed values move. Either way, the deduction's value grows every year through 2031, so the long-run effect is real even where the short-run effect is muted.
What landlords and farmers should do now
- Confirm the deduction appears on every qualifying parcel's 2026 bill.
- Check the class code. A wrong code can silently disqualify you. Misclassification is a factual appeal ground independent of value.
- Farmland owners: pair this with attention to the base rate. Appeal tactics for the farmland base rate are in Indiana farmland base rate 2026 appeal tactics.
- Plan for the schedule. As the percentage rises through taxes payable in 2031, the benefit grows, factor it into multi-year hold and pro forma assumptions.
For the full sweep of what SB1 changed, see Indiana SB1 property tax reform 2026. Note that homestead-side changes are arriving on a separate track, previewed in Indiana homestead deduction changes 2027.
What to check on every parcel
- The class code. Confirm each rental and farmland parcel is coded into the 2% tier. This is the gatekeeper for the deduction.
- The deduction line. Find the line item reducing net assessed value and confirm it is present for the current year.
- The percentage. As the schedule steps up, confirm the applied percentage rose year over year rather than freezing at the 2026 figure.
- Multiple parcels. If you own several rentals or farm tracts, check each one. An auditor error on one parcel does not show up on the others.
- Recently converted property. A home you just turned into a rental should have moved from the 1% to the 2% tier; confirm the reclassification actually happened.
Common questions
Do I need to apply for this deduction? No. County auditors apply it automatically, with no form and no deadline. Your only job is to verify it appears on the bill for each qualifying parcel.
Why isn't the deduction on my bill even though I own a rental? The most common cause is a class code that places the parcel in the wrong cap tier, for example a rental miscoded as commercial, which lands in the 3% tier and gets nothing. Correcting the code is a factual appeal ground independent of value.
Does the deduction reduce the 2% cap itself? No. The deduction lowers your net assessed value before the rate applies; the 2% cap is a separate ceiling on the final bill. They are two different mechanisms that both work in your favor.
My farm has both land and a dwelling. Does all of it qualify? Agricultural land qualifies. A farm dwelling or certain outbuildings may be classed differently, so check each component's class code rather than assuming the whole parcel is treated the same way.
Find Your Property
Check whether the new deduction is on your bill. Search statewide records at /indiana, or start with a county like /indiana/marion to pull a specific rental or farmland parcel.
Our property lookup shows your cap tier, class code, and applied deductions in one place, and if the deduction is missing or your tier is wrong, our tax appeal team can correct it. For the statute background, the KSM SB1 summary and the DLGF are good references.