Report: Property Tax Deductions, Caps Limit Revenue

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A report from Ball State University's Center for Business and Economic Research centers on the negative effects of property tax deductions and rate caps on local governments. The report says both unevenly benefit residential property owners and limit local government revenue.

The report, titled "Residential Property Tax Deductions and Effective Property Tax Rates in Indiana," says residential property tax rates are regressive. That means higher-valued properties pay a smaller share of value in property taxes than lower-valued properties.

The study, which was co-authored by CBER director Michael Hicks and research director Dagney Faulk, adds that residential property tax deductions increased from 13.9 percent of gross assessed value in 2003 ($51 billion) to 29 percent in 2013 ($139 billion).

"These deductions reduce the property tax base, which puts upward pressure on tax rates because such rates would have to increase to raise equivalent revenue," said Faulk. "However, rate caps restrict property tax rates and associated tax levies. As a result, both rate caps and diminished property tax base have limited the revenue raising capacity of many local governments."

The report, which was funded by the Indiana Association of Realtors, says the three largest property tax reductions are the homestead standard deduction, the supplemental homestead deduction and the mortgage deduction.

You can view the full report below:

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