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Tax Caps: Impact on Taxpayers

In 2010, Indiana voters amended the state's constitution by incorporating language on property tax caps. Known as the Circuit Breaker tax credit, these tax caps place a limit on property tax bills based on the gross assessed value of the property.

In short, if your tax bill exceeds the tax cap limit, the "circuit breaker" will be applied. You will enjoy the tax savings, while local government units will lose the anticipated revenue.

The tax cap thresholds are:

Homesteads: 1%
Other residential property; agricultural land: 2%
All other property, such as businesses and personal property: 3% 


How it works

Let's say you own a home. All your property is classified as a homestead, which is your principal place of residence and up to one acre of immediately surrounding land. If your homestead is assessed at $180,000, your property tax will cannot exceed $1,800 (unless an important exception applies; see below). 

Now, let's say you own a home on five non-farmed acres. The homestead portion will be capped at 1% of its gross assessed value, while the remaining four acres will fall in the 3% category (unless the exception applies).

Savings

How much does the tax cap save taxpayers? Below is a look at 2015 tax bills for three homesteads with the same assessed value but in different areas of Porter County with different tax rates. (Calculations include the homestead and mortgage deductions; figures are rounded.)


   Assessed Value  Tax before
  tax cap
 Does tax exceed
tax cap?
 Tax
 Valparaiso/Center  $180,000  $2,038 Yes   $1,800
 Portage  $180,000  $2,193 Yes  $1,800
 Washington Township  $180,000  $1,248 No  $1,248

As you can see, the Valparaiso homeowner saved about $238 from the Circuit Breaker and the Portage homeowner saved about $393. The Washington Township homeowner's tax bill didn't "hit" the tax cap limit. Even though this homeowner didn't see a tax cut due to the tax cap, this homeowner still paid a lower tax than the other two.

Referendum Exception

An important exception to the Circuit Breaker law involves taxes approved through a voter referendum. If you have a tax rate established through a referendum, this rate is calculated on your tax bill without the Circuit Breaker applied. In Porter County, voter-approved rates are in effect for the Duneland, Boone Township, and Union Township school corporations. (In 2016, the Valparaiso Schools will also have referendum-approved tax rates).

In general, this exception means that taxpayers may still see a savings on their tax bills due to the tax caps, except for the taxes approved in a referendum.

For more information on how the tax caps affect local government, see the link to the left, "Tax Caps: Impact on Tax Units."