2025 Indiana Legislative Update

The Indiana General Assembly closed its 2025 legislative session on April 25, 2025, marking a significant turning point for the state and ushering in a new era of fiscal policy under Gov. Mike Braun. With the passage of a $44 billion biennial budget and over 60 new measures, many of Braun’s campaign promises – including sweeping property tax relief, enhanced government transparency, and local tax reforms – have become law.

The session delivered major wins for homeowners and small businesses through substantial property tax cuts, including a dramatic increase in the business personal property tax exemption and the elimination of the 30% depreciation floor. Beyond tax relief, the session focused on empowering local governments, introducing new income tax structures, streamlining the pass-through entity tax (PTET) process, and laying the groundwork for a statewide tax amnesty program.

Property Tax Cuts

By far, property taxes were the focus of this year’s session. Gov. Braun’s promise was to “deliver historic property tax relief for all Indiana residents.” To accomplish this goal, he did a few things.

1. Raised the property tax exemption threshold for businesses

Indiana increased the exemption threshold for business personal property from $80,000 to $2,000,000 in taxable cost per county for the Jan. 1, 2026, assessment.

2. Removed the 30% depreciation floor for personal property taxes

Historically, Indiana stipulated that the assessed value of a business’ personal property could not fall below 30% of its acquisition cost. Senate Bill 1 removed this 30% floor for property placed in service after Jan. 1, 2025. Moving forward, businesses will be able to more fully depreciate personal property, likely leading to lower property tax bills. But there’s one caveat: Property located in a TIF district is still subject to the 30% floor.

3. Offered a property tax deduction to certain property owners

Indiana places caps on the amount of tax that property owners pay, ranging from 1% to 3% of the property’s value. The tax cap categories are:

Tax Cap Category	Applies to…
1% Cap	Homesteads (owner-occupied homes)
2% Cap	Residential Property (i.e., rentals) Long-term Care Property Agricultural Land
3% Cap	Nonresidential Property Business Personal Property

Senate Bill 1 introduced a new deduction for property owners in the 2% cap category. Beginning with taxes payable in 2026, these property owners are eligible for a deduction worth 6% of the assessed value of their property. This rate will increase over the next few years so that for taxes payable in 2031, taxpayers are awarded a 33.4% deduction.

4. Offered most homeowners a $300 property tax credit

Senate Bill 1 gives all homeowners an annual property tax credit for property taxes payable in 2026 or later. The credit is 10% of their tax liability, up to a maximum of $300. And taxpayers 65 and older may be eligible for an additional $150 credit.

5. Increased supplemental homestead deduction

Senate Bill 1 expanded the supplemental homestead deduction for homeowners gradually beginning for taxes payable in 2025 through taxes payable in 2031. With the gradual expansion of the supplemental deduction, the standard homestead deduction will be reduced beginning with taxes payable in 2027 until it is eliminated effective for taxes payable in 2031.

6. Called for transparency

Senate Bill 1 calls for a property tax transparency portal to be created and available to taxpayers by 2026, which helps taxpayers compare tax bills with those from prior years.

Local Income Tax Rate Changes

Though most legislation in this year’s session focused on property taxes, some changes were made to income taxes. Senate Bill 1 simultaneously lowered the tax rate cap for counties and increased the tax rate cap available for cities and towns.

• Effective July 1, 2025, counties may authorize and impose a tax to assist with funding the property tax reductions. The tax is not clearly specified but is capped at 0.3%, and if enacted would expire as of Dec. 31, 2027.
• The maximum county income tax rate was standardized from 2.5% or 2.75% to 2.9%, effective July 1, 2027.
• Cities and towns may now be permitted to impose their own local income taxes of up to 1.2%, which they were previously unable to do.

The result is that the potential combined local income tax rate cap cannot exceed 2.9%. If cities and towns choose to impose their own local income taxes, residents in those areas could see their income tax bills increase.

Other Changes

A few other noteworthy changes from the 2025 legislative session include:

• PTET calculation changes

Indiana’s pass-through PTET was created to help circumvent a federal tax law that limits the amount of state and local taxes (SALT) pass-through entity owners could deduct. Though the solution is good for owners of partnerships and S corporations, the law is administratively complex. It’s difficult for entities to anticipate the SALT credit utilization of the underlying partners, resulting in overpayments and subsequent tax refunds to Indiana residents. The legislation that passed this session attempted to make this process simpler, retroactive to the 2025 tax year. Read more about this issue here.

• Tax amnesty program

Legislation requires the Indiana Department of Revenue to establish a tax amnesty program. The state of Indiana tends to offer an amnesty program every 10 years or so. The goal of these programs is to help taxpayers that have unpaid back taxes to come back into compliance. Taxpayers should talk to their advisors to see if the amnesty program is the best move, or if they should take advantage of the state’s voluntary disclosure program instead.

Want to learn more about what passed?

Details on tax-related legislation that passed – and how the bills could potentially impact your business – are below. If you have questions about any of this new legislation, reach out to your KSM advisor or fill out the form below.

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Income Tax

Expansion of Local Income Tax: Effective July 1, 2025, a county may impose an additional tax rate not to exceed 0.3% used to fund the replacement of the county’s decrease in property tax. This additional tax rate will remain available until Jan. 1, 2028, when the new local income tax structure takes effect. Beginning in 2028, Indiana will cap the combined local income tax rate at 2.9%. Municipalities may impose up to a 1.2% income tax, while counties may impose up to 1.7%. Counties may also have the option to levy the municipal portion on behalf of municipalities. Additional guidance from the Indiana Department of Revenue is expected.

Treatment of No Prior Year Liability for Estimated Payment Purposes: Effective Jan. 1, 2026, corporations and individuals who had no income tax liability in the prior year or did not file a return for that year will be treated as having a zero-dollar prior year liability. Accordingly, no estimated payments will be required for the following year in accordance with the safe harbor from underpayment of estimated tax penalties.

Continuation of State Income Tax Rate Reduction: The tax rate reductions implemented in prior years through tax year 2029 remain in effect under existing law and are not impacted by recent legislation. However, beginning with tax year 2030, further reductions are subject to specific revenue-based triggers.

Expansion of PTET Benefits: Newly enacted legislation makes key changes to Indiana’s PTET regime. First, the change grants limited penalty relief related to the Q1 estimated payment in 2025 for certain PTET taxpayers. Second, effective Jan. 1, 2025, additional individual level income tax credits may apply when calculating PTET liability. Analysis is needed to determine the desired outcome for the pass-through entity and its resident and nonresident owners.

Creation of an Investment Partnership Category: Indiana created an “investment partnership” category for qualifying partnerships, effective Jan. 1, 2026. Partnerships meeting two tests may be classified as an investment partnership: Must derive at least 90% of their income over three of the last five years from “qualifying investment securities” – such as stocks, bonds, currency deposits, options, and derivatives Must hold at least 90% of their total assets as securities, bank deposits, and necessary office space and equipment If the tests to be an investment partnership are met, income distributed to nonresident partners may be sourced to the partner’s state of residence or commercial domicile eliminating Indiana income tax for the nonresidents.

New Restrictions on Tax Credit for Physicians: Effective Jan. 1, 2025, Indiana now imposes additional parameters for purposes of claiming a tax credit for physicians.

Sales Tax

Sales Tax Exemption for WNBA All-Star Weekend: The General Assembly provided a broad sales and use tax and Marion County admissions tax exemption for Indianapolis’ hosting of the WNBA All-Star game and festivities in summer 2025.

Complimentary Use Tax on Services: Effective July 1, 2025, a complimentary use tax is now imposed on purchasers of taxable services in Indiana. These services include software maintenance contracts, telecommunications services, and cable or satellite television and radio services, among others. Prior to this legislative change, there was no imposition on the purchaser to remit use tax on the purchase of these services when a vendor did not charge Indiana sales tax. Additional guidance is expected from the Indiana Department of Revenue.

Sales Tax Exemption for Investments in Quantum Research Infrastructure: Indiana has amended existing tax incentives for data centers to include investments in quantum computing research, advanced computing, and defense infrastructure networks. Specific requirements apply including completing an application process as well as investment in aggregate of $50,000,000 or greater in the named fields within three years of issuance of a certificate from the Indiana Economic Development Corp.

Local Food and Beverage Tax and County Innkeeper’s Tax: Effective July 1, 2025, numerous cities and towns have been authorized to impose their own food and beverage taxes at the local level. Additionally, four counties have been authorized to increase their county innkeeper’s tax rates above that already permitted in the uniform code. Various other changes were made to specific localities’ local food and beverage tax and county innkeeper’s tax. The Indiana Department of Revenue publishes rates by city and county for both of these tax types on its website.

Administrative Changes

Expanded Disclosure of Taxpayer Information: The Indiana Department of Revenue may now disclose Indiana tax return information of another Indiana taxpayer to help a taxpayer determine their own tax liability or filing requirements. Additional guidance is expected from the department to clarify when and how this disclosure will apply.

New Tax Amnesty Program: Prior to Jan. 1, 2027, the Indiana Department of Revenue will administer a tax amnesty program for taxpayers having an unpaid tax liability of any tax type for tax years ending before Jan. 1, 2023. Participation in the amnesty will eliminate interest and penalties related to the disclosed tax liability. Additional guidance is expected from the department.

Property Tax

Increase in Business Personal Property Exemption: Coming into this year’s session, businesses with less than $80,000 of assets had an initial property tax return filing requirement – but were not required to file additional returns unless the business acquired greater than $80,000 in taxable costs. Senate Bill 1, together with House Bill 1427, raised the exemption threshold from $80,000 to $2 million for property taxes assessed on Jan. 1, 2026. When these taxes come due in 2027, many small- and medium-sized businesses will no longer owe personal property taxes.

Expansion of Supplemental Homestead Deduction and Reduction in the Standard Homestead Deduction: Senate Bill 1 gives homeowners an increase in the supplemental homestead deduction. For taxes payable in 2025, the supplemental homestead deduction was equal to 37.5% of the assessed value that is not more than $600,000 and an additional 27.5% deduction of the assessed value that is more than $600,000. Beginning with taxes payable in 2026, the supplemental deduction will be 40% deduction from the assessed value. This deduction will increase to: 46% for taxes payable in 2027 52% for taxes payable in 2028 57% for taxes payable in 2029 62% for taxes payable in 2030 66.7% for taxes payable in 2031 and each year thereafter The standard homestead deduction for taxes payable in 2025 and 2026 is $48,000. With the increase in the supplemental deduction, the standard deduction will be reduced beginning with taxes payable in 2027: $40,000 for taxes payable in 2027 $30,000 for taxes payable in 2028 $20,000 for taxes payable in 2029 $10,000 for taxes payable in 2030 $0 for taxes payable in 2031 and each year thereafter

Property Tax Incentive for Investments in Quantum Research Infrastructure: Indiana has amended existing tax incentives for data centers to include investments in quantum computing research, advanced computing, and defense infrastructure networks. Specific requirements apply including the investment of at least $100,000,000 in real and personal property within a municipality after Jan. 1, 2026; maintaining an average wage of at least 125% of the municipality’s average wage; and entering into an agreement with the municipality for the property tax exemption.

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KSM’s State & Local Tax Group closely follows the Indiana General Assembly and keeps detailed records of even minor law changes. Thus, if you have questions about how these or other pieces of legislation might affect your business, please contact your KSM advisor or fill out the form below.