Rental properties and taxes

IAR held one of our major “Triennial” meetings of the general membership in Merrillville recently, and the citizens of northwest Indiana were terrific hosts. The Property Tax Committee and the Government Affairs Committee met jointly to listen to a panel of elected officials and policy experts. It was truly a great dialogue, and it sparked a number of questions.

One thing was very clear—REALTORS® from around the state are concerned about the tax burden on rental or non-homestead residential properties.
Experienced agents and brokers spoke of investors unloading properties due to the relatively high property tax burden. It seems likely that this is contributing to the slow rate of price appreciation in Indiana. This story by WNDU of South Bend demonstrates how serious this problem is in some areas of the state (click here).

For owner-occupied homes, it appears as though the boost in the state-paid Homestead Credit for this year’s property taxes is having a noticeable, positive impact. For example, a story in the Fort Wayne Journal Gazette on April 14th began:

Thanks to last-minute action by the Indiana General Assembly, homeowners across Allen County will reportedly see a 3 percent average drop in their property tax bills. (Click here for the full article.)

But next year, homeowner relief will come not as a credit, but rather as a $10,000 increase in the $35,000 “standard” deduction. This deduction will further shift the existing tax burden to all other classes of property, including rental homes. IAR did not support this approach, and Dan Shaw’s article in the Lafayette Journal and Courier from April 17th indicates that a key fiscal leader wants to get away from the deduction “game”:

State Sen. Luke Kenley, R-Noblesville, says he wants to end the practice of giving relief to just one group. In 2007, the chairman of the Senate Tax and Fiscal Policy Committee will again introduce a bill that will allow local governments to raise an income tax and use revenue from that source to replace money they would otherwise get from property taxes.

"I'm tired of choosing which taxpayers are more deserving than somebody else," he said. "The truth is everybody's property taxes are too high."

We couldn’t agree more. Here’s hoping that 2007 is a session in which Indiana reduces its overall reliance on property taxes, providing cuts for owners all classes of property.