Rental Property Taxes in Indiana (2026 Guide)

1. Property Tax & the 2% Rental Cap

Indiana assesses real property at its market value-in-use, with a statewide effective rate around 0.7%. The state's constitutional circuit-breaker caps (IN Const. Art. 10 §1; IC 6-1.1-20.6) limit your bill to a percentage of assessed value — but the tier depends on use:

• 1% — homestead (owner-occupied primary residence).
• 2% — other residential, including rentals and apartments, plus farmland.
• 3% — commercial, industrial, and personal property.

2. Income Tax: Flat 2.95% Plus County LIT

Indiana taxes rental income at a flat 2.95% for 2026 (a step-down from 3.00% in 2025 to 2.90% in 2027 under HB1001), starting from federal AGI with no capital-gains preference. But the headline rate is not the whole story:

• County local income tax (LIT) stacks on top — an additional 1%–3% depending on your resident county, on the same income base (IC 6-3.6). Combined, state + local on rental profit is roughly 4%–6%.
• Exemptions, no standard deduction — $1,000 per person plus $1,500 per qualifying-child dependent.

3. Bonus Depreciation & §179 Decoupling

Indiana decouples from federal bonus depreciation (§168(k)) and requires a full add-back — you depreciate the property for Indiana under regular MACRS as if no bonus had been claimed, then recover it through later-year adjustments (DOR Information Bulletin #118).

4. No Transfer Tax

Indiana is one of the few states with no real-estate transfer or deed tax. Selling or transferring a rental costs only a flat $20 Sales Disclosure Form fee (plus a small per-parcel recording fee in some counties) — a real advantage on disposition versus states that take a percentage of the sale price.

5. LLC Fees (Biennial, Low Cost)

An Indiana LLC files a Business Entity Report every two years for $32 online (IC 23-0.5-2-13). There is no separate annual LLC franchise tax — the biennial report is the main recurring cost, one of the cheaper setups in the country.

6. Rent Control

Indiana prohibits local rent control (IC 32-31-1-20) — local governments may not regulate rental rates on privately owned property unless the General Assembly authorizes it. The only carve-out is for property receiving government funds tied to reduced rents.

7. Security Deposit Rules

• No statutory cap on the deposit amount (IC 32-31-3).
• Return within 45 days of the lease ending and the tenant surrendering possession, with a written itemized statement of deductions.
• Get a forwarding address in writing — you are not liable to return the deposit until the tenant provides one; failing to itemize can forfeit the withheld amount plus attorney's fees.

8. How SheltrIQ Helps Indiana Landlords

SheltrIQ keeps your federal and Indiana returns aligned and surfaces the items unique to IN:

• Bonus and §179 add-back tracking — flags the Indiana decoupling and keeps a separate IN depreciation basis.
• State + county income modeling — accounts for the county LIT that stacks on the flat 2.95% so your projected tax is the real number.
• AI Schedule E classification — sorts every expense to the right line so your Indiana income starts from an accurate federal return.
• Deadline reminders — keeps the biennial entity report and estimated-payment dates on your radar.