Property tax bills causing a stir

Elimination of mortgage exemption not the culprit for tax hikes; legislature trying to overhaul system

This article is brought to you by Freedom Financial.

Property tax bills hit Howard County mailboxes over the past week, and some homeowners experienced a bit of sticker shock. Tax bills, in some cases, increased by 20 percent or more.

At the same time, a new notice appeared on the bills. The state’s mortgage exemption to property taxes is gone. It would be easy to draw a correlation between the two changes and believe the tax hike was inflicted by the Indiana Legislature.

The truth is actually the opposite. The $3,000 mortgage exemption was repealed in 2022, effective this year. But at the same time the legislature increased the homestead credit by $3,000. Not only was the exemption amount balanced for those paying off their homes, but those without a mortgage received an added tax break.

“It was done to simplify property taxes and lower the impact of the increase in assessed value,” said Rep. Mike Karickhoff (R-30), who represents most of Kokomo and parts of eastern Howard County. “If you think about it, you're now giving the mortgage exemption to everybody, right?”

If the exemption change didn’t do it, what caused property taxes to go up this year? Simply put, property is more valuable than ever before in Howard County.

Assessed values on property are subject to a five-year, rolling evaluation. As properties sell for more and more money, the assessed values on those properties, along with those in the same neighborhood, also increase. That means more taxes to be paid on those properties. And local government gets the benefit.

Karickhoff explained that property taxes have increased on Hoosiers over the past few years, but because of the property tax caps that were put in place in 2008, along with a frozen tax levy that further limited the rate of budget growth, local units of government consistently claim to not have enough money.

This equation changed following the pandemic in 2020, prompting additional restrictions from the legislature to protect taxpayers.

“With assessment growing at an extreme rate, kind of following inflation, (local units of government) have lots of revenue,” said Karickhoff. “So, we put in a growth quotient cap. We tapped the amount of growth that they were allowed to capture. Rolling the mortgage exemption into the overall homestead exemption was an additional way to lower the tax liability on homeowners.”

In effect, things could actually be worse for taxpayers whose properties haven’t yet hit the 2008 tax cap.

At the same time, the legislature looked at the property tax exemption structure and saw the many disparate tax breaks already in place. There are exemptions for the blind, for property owners over the age of 65, for veterans, for the disabled. Vulnerable groups continue to be protected. Striking the mortgage exemption and increasing the homestead exemption further benefited these groups, along with the general public.

“We tried to strike a balance by simplifying the number of available exemptions and cap the growth of property taxes,” said Karickhoff.

And the legislature’s efforts aren’t finished. Last year, Indiana lawmakers surveyed their constituents, asking residents their opinions on which taxes should be reduced or eliminated entirely as the state works on a long-term overhaul of the tax system.

The results overwhelmingly indicated that taxpayers want to see property taxes disappear, more than income taxes, sales taxes, or even gasoline taxes. That’s bad news for local government.

Property taxes are the primary revenue for local government. Reducing or removing that tax would mean either a significant increase in other taxes, or a significant reduction in government services.

Those potholes not getting filled today would only multiply. That ambulance service some in Kokomo would like to see restored? No chance. More police officers and firefighters? No money for them. The removal of property taxes would hamstring local government severely.

The 2025 session of the Indiana Legislature is currently scheduled to hear tax reform options based on information being collected now. How that will impact tax bills or government services is yet to be determined. Until then, Howard County property owners are going to pay a bit more.