Homestead Credit


Eligibility


  • To qualify for the homestead credit in Indiana, you must reside in your own home, which includes mobile and manufactured homes, on land not exceeding one acre and you must have owned the property by March 1 of the current property tax year. Buyers in contract can qualify if the purchase contract provides for them to pay taxes as of March 1. Only one individual is permitted the credit per property.


Amount


  • The credit is equal to 20 percent multiplied by the property tax liability attributable to the homestead. Prior to 2003, the percentage was less. The rate may be increased by a state budget agency. The homestead credit may be combined with a host of other property tax deductions, exemptions and credits. The homestead credit is funded by the state of Indiana. The state reimburses county governments for the cost, and the county sends a check to the taxpayer.


Paperwork


  • Homeowners must fill out a claim for homestead property tax standard/supplemental deduction, State Form 5473. The form must be filled out each time the property title changes, including for the transfer of your property into your trust. From time to time, the state or county can also require you to fill out a verification form to keep the tax credit. The county auditor determines each taxpayer's homestead refund amount between November 10 and December 20 of each year.


Other Indiana Property Tax Benefits


  • Indiana offers property tax deductions for homeowners over age 65, blind and disabled, disabled veterans, World War I veterans and spouses of World War I Veterans. In addition to the homestead credit, all homeowners who have a mortgage for their owner-occupied homes are entitled to claim a mortgage deduction, and all homeowners living in their own homes on properties not exceeding one acre are entitled to a standard deduction. All but the homestead credit are taken as deductions from assessed value.


Tax Exemption


  • Tax exemptions are a way for you to reduce your taxable income by a flat amount, which increases based on the number of people that your tax return represents. More specifically, the taxpayer can take an exemption for herself, her spouse (if they are filing jointly) and any children or adults who are dependent on them. For example, in 2009 the exemption amount was $3,650, so a married couple filing jointly with two children would be able to exempt $14,600 of income.


  • Because exemptions make your income go down, they mean that you pay less tax. Unfortunately, though, they are limited by your income level, with high earners losing the ability to exempt any income. Also, alternative minimum tax payers receive a flat exemption in lieu of the personal exemptions, and in lieu of most other deductions.


Tax Credits


  • The Internal Revenue Service also offers a number of tax credits that reduce the amount of tax that a person has to pay. Credits do not reduce your taxable income; they instead reduce the actual tax due. One of the best known credits is the Earned Income Tax Credit. This credit increases the effective earnings of people who work but make relatively little money. However, credits are offered for a number of different things, including as an offset for foreign taxes that a taxpayer pays, as a rebate on the purchase of a "green" vehicle and as an offset for the myriad of expenses involved in raising children.


Refundable vs. Non Refundable Credits


  • Credits come in two types -- refundable and non-refundable. Both work to reduce your tax bill, but non-refundable credits can only reduce your tax liability to zero, and will not trigger a refund check from the IRS. Refundable credits, on the other hand, can reduce your tax bill to a negative number, meaning that the IRS sends you money.


Other Adjustments


  • In addition to credits reducing your tax and exemptions reducing your taxable income, the IRS allows you to take both adjustments and deductions. Generally speaking, adjustments, which impact your "adjusted gross income," are subject to fewer limits. For instance, although the alternative minimum tax excludes most deductions, it is calculated on the basis of your adjusted gross income, which includes all of your adjustments. Deductions can also reduce your income, but are frequently subject to income limitations, significantly reducing their value for certain high-income taxpayers.


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