Indiana Tax Exemptions: Property, Sales, and Income Tax Rules

Indiana tax exemptions cover property, sales, and income taxes, and they can substantially cut what homeowners, renters, veterans, families, nonprofits, and businesses owe. The state income tax rate for 2026 is 2.95%, with every county adding its own income tax on top, roughly 1.4% to 3% depending on where you live.¹ Which breaks you qualify for depends on who you are and what you own; getting the paperwork right is what turns eligibility into savings.

Homestead Deductions for Homeowners

If you own and live in your home in Indiana, the homestead deduction is likely the largest property tax break available to you. Indiana provides two layers: a standard deduction and a supplemental deduction, both applied once you file the right paperwork.²

Legislation passed in 2025 restructured how these deductions work. The standard deduction is being phased down while the supplemental deduction is being phased up each year through 2031, when the supplemental portion will shield roughly two-thirds of a homestead’s assessed value from taxation.³

To qualify, the property must be your principal residence in Indiana. You must either own it outright or be buying it under a recorded contract that makes you responsible for the taxes. The deduction covers your dwelling and up to one acre of surrounding land.⁴

Over-65 Property Tax Credit

Beginning with 2026 property tax bills, Indiana replaces the former over-65 deduction with a $150 credit. You must be at least 65 and meet the income limits: $60,000 in adjusted gross income for single filers or $70,000 for joint filers.³

Veteran Property Tax Deductions

Indiana offers two separate property tax deductions for veterans, and qualifying veterans can claim both at once for a combined deduction of up to $38,960 from the home’s assessed value.⁵

The $24,960 deduction under IC 6-1.1-12-13 is available to veterans who served during a qualifying wartime period and have a service-connected VA disability rating of at least 10%. Surviving spouses of eligible veterans may also qualify.⁶

The $14,000 deduction under IC 6-1.1-12-14 is available to veterans who served at least 90 days with an honorable discharge and are either totally disabled or at least 62 with a 10% or greater VA disability rating. The home’s assessed value must be under $240,000. Surviving spouses of eligible veterans, and of service members killed in action, also qualify.⁷

Both apply only to the veteran’s primary Indiana residence. Veterans who meet both sets of criteria can stack them, but the $240,000 assessed value cap still applies to the combined deduction.⁵

Renter’s Deduction

If you rent your primary residence in Indiana and the property is subject to Indiana property tax, you can deduct up to $3,000 from your adjusted gross income. Married couples filing jointly share the same $3,000 cap, and married individuals filing separately are limited to $1,500. The deduction does not apply if your rental unit is exempt from property tax.⁸ The underlying statute is IC 6-3-2-6.⁹

Income Tax Exemptions for Families and Others

Indiana allows a $1,000 exemption for each qualifying dependent, plus an additional $1,500 for certain dependent children.¹⁰ Claim these on Schedule 3 (residents) or Schedule D (part-year and nonresidents), with Schedule IN-DEP listing each dependent’s Social Security number.¹¹

Deductions are also available for military service pay, certain retirement and survivor’s benefit income, and disability retirement income under IC 6-3-2-4 and related provisions. Certain unreimbursed education expenditures may be deductible as well, and distributions used for higher education may qualify for an exemption.¹²

Indiana residents who earn income in another state and pay income tax there can claim a credit on their Indiana return to avoid double taxation. This matters most for people who live near the state border and commute to Illinois, Ohio, Kentucky, or Michigan.

Sales Tax Exemptions

Indiana’s sales tax exemptions run through Indiana Code 6-2.5-5. The commonly used ones include agricultural products and equipment (seeds, feed, fertilizers, agricultural chemicals, and farm machinery used in production); prescription medications, insulin, oxygen, blood glucose monitoring supplies, and certain medical devices acquired by patients or licensed practitioners;¹³ and sales to the federal government, to the extent the state is constitutionally prohibited from taxing them.¹⁴ Manufacturing and processing equipment and materials directly used in production may qualify under the “double direct” test: the property must be integral and essential to the production process.¹⁵

Businesses claim these by giving the seller a completed Form ST-105, Indiana’s General Sales Tax Exemption Certificate. All five sections must be filled out, or the exemption is invalid and the seller must collect tax.¹⁶ A single form can cover one purchase or serve as a blanket certificate for ongoing exempt purchases from the same vendor.

Nonprofits: A Separate Track

Nonprofits and religious organizations do not use the same certificate as businesses, and the property tax rules also work differently. This is where costly mistakes tend to happen.

For property tax, Indiana exempts property that is owned, occupied, and used for educational, literary, scientific, religious, or charitable purposes. All three conditions must be met. A church holding regular services in its building qualifies. A nonprofit that owns a building but rents most of it to commercial tenants may not. Courts require applicants to show that the property’s primary use genuinely serves the exempt purpose, and incidental commercial activity can limit the exemption to the portion of the building actually used for exempt purposes.¹⁷

Nonprofits building affordable housing can also receive an exemption on land acquired for constructing or renovating a single-family home that will be sold or given in a charitable manner to low-income individuals who will use the home as their residence.¹⁷

For sales tax, since January 1, 2023, nonprofits cannot use Form ST-105.¹⁸ A nonprofit must first be recognized by the IRS, then file Form NP-20A through the state’s INTIME portal. Once the Department of Revenue approves the application, the organization receives Form NP-1, which is the certificate used for exempt purchases. Nonprofits must also file Form NP-20R every five years by May 15 to keep their registration current.¹⁹

Even with a valid NP-1, not every purchase is exempt. The item must be used to carry on the nonprofit’s exempt purpose or to raise money for that purpose. Purchases for the private benefit of members, including meals and lodging for officers, are never exempt, even when the organization pays directly. Social-purpose purchases are always taxable.²⁰

Business Personal Property Exemption

For the 2026 assessment date and beyond, a business whose total personal property in a county has a maximum acquisition cost of $2,000,000 or less is exempt from personal property tax in that county. That is a large jump from the previous $80,000 threshold and removes the filing burden for most small and mid-sized businesses.²¹ Businesses with more than $2,000,000 in acquisition cost in a single county still need to file a personal property return and pay tax on the full assessed value.

How to Apply

Each break has its own form and deadline, and missing either can cost you the benefit for a full year.

Property Tax

Nonprofits, churches, and similar organizations file Form 136 with the county assessor before April 1 of the assessment year.²² The application requires detailed information about how the property is used, along with articles of incorporation, bylaws, and three years of financial statements. The county’s Property Tax Assessment Board of Appeals (PTABOA) reviews the application and decides whether the property meets the statutory criteria.²³

Homestead and veteran deductions are claimed by filing the appropriate forms with the county auditor. Homestead deductions generally remain in place as long as you continue to own and occupy the property; veteran deductions may require periodic re-filing depending on county procedures.

Sales Tax

Businesses give completed ST-105 forms to sellers at the time of purchase. Sellers keep them on file. Nonprofits file Form NP-20A through INTIME, receive Form NP-1, and use that certificate for exempt purchases.¹⁹

Income Tax

Income tax exemptions, deductions, and credits are claimed on your annual return. Residents use Form IT-40; part-year and full-year nonresidents use Form IT-40PNR.¹¹ Keep W-2s, 1099s, rental receipts, and lease agreements; the Department of Revenue can request them at any time.²⁴

What Getting It Wrong Costs

Any underpayment of Indiana tax accrues 7% annual interest for calendar year 2026, running from the date the tax was due, not the date the error is discovered.²⁵

Fraud is punished far more harshly. Filing a return or claiming an exemption with the intent to evade tax carries a civil penalty of 100% of the unpaid amount, on top of the tax and interest owed.²⁶ Misuse of Form ST-105 can result in tax, interest, and civil or criminal penalties for both the individual who signed it and the business they represent.¹⁶

If Your Application Is Denied

If the PTABOA denies a property tax exemption, you can appeal to the Indiana Board of Tax Review by filing a petition within 45 days after the PTABOA mails its final determination. Taxpayers who believe there is a factual error in an assessment can also file a limited appeal within three years of when the taxes were first due. Beyond the Board, Indiana has a dedicated Tax Court with exclusive jurisdiction over cases arising under state tax laws.²⁷ The burden of proof is on the taxpayer, so document your eligibility thoroughly from the start.

1
Indiana General Assembly. Indiana Code 6-3-2-1 – Imposition of Tax; Tax Rate
2
Indiana General Assembly. Indiana Code 6-1.1-12-37 – Standard Deduction for Homesteads
3
IN.gov. Legislation Approved During the 2025 Legislative Session Provides New and Expanded Property Tax Deductions
4
Department of Local Government Finance. Homestead Deductions
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IN.gov. Disabled Veteran Property Tax Deduction
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Indiana General Assembly. Indiana Code 6-1.1-12-13 – Deduction for Veteran With Partial Disability
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Indiana General Assembly. Indiana Code 6-1.1-12-14 – Deduction for Totally Disabled Veteran or Veteran Age 62 and Partially Disabled
8
Indiana Department of Revenue. Renter’s Deduction
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Indiana General Assembly. Indiana Code 6-3-2-6 – Deduction; Rent Payments
10
Indiana Department of Revenue. IT-40PNR Part Year and Full Year Nonresident Individual Income Tax Booklet
11
Indiana Department of Revenue. Current Year Individual Tax Forms
12
Justia. Indiana Code Title 6, Article 3, Chapter 2 – Imposition of Tax and Deductions
13
Justia. Indiana Code Title 6, Article 2.5, Chapter 5 – Exempt Transactions of Retail Merchant
14
Indiana General Assembly. Indiana Code 6-2.5-5-24 – Exemption; Sales to the United States Government
15
Indiana Department of Revenue. Agricultural Production Exemptions
16
Indiana Department of Revenue. General Sales Tax Exemption Certificate Form ST-105
17
Indiana General Assembly. Indiana Code 6-1.1-10-16 – Exemption of Building, Land, and Personal Property Used for Various Purposes
18
Indiana Department of Revenue. Sales Tax Forms
19
Indiana Department of Revenue. Nonprofit Tax Forms
20
Indiana Department of Revenue. Application of Sales Tax to Nonprofit Organizations
21
IN.gov (Department of Local Government Finance). $2,000,000 Exemption Continued
22
IN.gov (Department of Local Government Finance). DLGF: Exemptions
23
Allen County, IN. Property Tax Exemptions – Nonprofits
24
Indiana Department of Revenue. IT-40PNR Part Year and Full Year Nonresident Individual Income Tax Booklet
25
Indiana Department of Revenue. Interest Rates for Calendar Year 2026
26
Indiana General Assembly. Indiana Code 6-8.1-10-4 – Failure to File Return; Fraudulent Intent to Evade Tax; Penalty
27
Indiana General Assembly. Indiana Code 33-26-3-1 – Limited Jurisdiction; Exclusive Jurisdiction