Low-income housing tax credit (LIHTC) properties — "Section 42" deals, after the Internal Revenue Code section that creates the credit — trade rent restrictions for federal tax credits. The owner agrees to cap rents for income-qualified tenants, usually for decades. That bargain breaks the normal relationship between a building and its market value, and Indiana's legislature responded with a valuation statute most owners have never read.
That statute is IC 6-1.1-4-41, on the books since 2005 (P.L.199-2005, amended through P.L.255-2017). If you own, manage, or are underwriting a Section 42 property in Indiana, it controls your assessment.
What Property the Statute Covers
The statute defines "low income rental property" as real property used to provide low-income housing eligible for federal credits under Section 42 — and, critically, it explicitly includes the period when the property is under an extended low-income housing commitment under Section 42(h)(6)(B). Indiana's extended-use agreements typically outlast the initial 15-year credit compliance period, so the special valuation rule keeps applying long after the credits are exhausted.
The Valuation Rule: Income Approach, With a Floor
For assessment dates after February 28, 2006, the true tax value of a Section 42 property is the greater of:
- the value determined using the income capitalization approach; or
- the value that produces a gross annual tax liability equal to 5% of the total gross rent received from all units for the most recent taxpayer fiscal year ending before the assessment date.
Read that carefully. The cost approach — replacement cost of the buildings minus depreciation, the default engine in most county CAMA systems — is not on the menu. Neither is a sales-comparison grid built from market-rate apartment trades. The assessor must capitalize the property's income, and the only check on a low income number is the 5%-of-gross-rent floor, which ties the tax bill to what the restricted units actually collect.
There's one carve-out: for assessment dates after December 31, 2017, Section 42 property providing Medicaid assisted living services is valued at the floor method alone — the value producing a tax liability of 5% of gross rents — with assisted-living service receipts excluded from the calculation.
Note
Why the legislature did this: a LIHTC building physically resembles a market-rate one, but its income is capped by covenant. Valuing it off market comps taxes income the owner is legally forbidden to collect. The statute forces the assessment to follow the restricted economics.
Why This Matters for Appeals
The most common error pattern is simple: the property gets massed-appraised like every other apartment complex. Marion County's 2026 apartment reassessment — and the second jump projected for 2027 — moved values sharply on conventional multifamily; a Section 42 asset swept along in that wave has a statutory defense conventional owners don't.
If your Form 11 shows a jump, the appeal case writes itself differently than a standard income-approach appeal:
- Establish eligibility first. Document the Section 42 award and the recorded extended-use commitment. That triggers the statute.
- Build the income model from actual restricted rents — rent rolls, the compliance-period rent limits, real vacancy and expenses. The mechanics parallel our multifamily income-approach walkthrough, except your rent inputs are covenant-capped.
- Check the floor. Compute the value that yields a tax bill of 5% of last fiscal year's gross rent. The statute gives the assessor the greater of the two numbers, so know both before you file.
- Reject market comps explicitly. Comparable sales of unrestricted apartments are the wrong evidence class here — the inverse of the usual comps-driven residential appeal.
Warning
The statute helps you only if you feed it. Assessors can't capitalize income they've never seen — an owner who ignores income-and-expense requests invites a market-style valuation, then has to unwind it at the PTABOA. Provide the operating data proactively with your appeal.
Portfolio Hygiene for LIHTC Owners
Section 42 portfolios are exactly the situation where parcel-level monitoring pays: multiple properties, multiple counties, and a valuation rule assessors apply unevenly. Verify each parcel's assessment history and class code (rental classification drives your tax cap), watch Form 11s land each spring, and track appeal windows across the portfolio. That workflow — for any rental owner — is what our landlord and investor software guide covers, and our tax appeal tools and property lookup are built for it.
For investors evaluating whether the numbers work before acquisition, the statute is actually an underwriting input: an income-restricted asset in a high-rate township behaves differently than the county-by-county rental math suggests for conventional units.