January 25, 2024

New Indiana Statute Opens Door to Lower Property Tax Assessments for Apartments in 2024

At a Glance

  • Property assessors in Indiana must value residential rental property with more than four rental units, including apartments, at the lowest of the three traditional approaches to value — cost, sales comparison and income capitalization — regardless of an appraiser’s reconciled opinion of the property’s market value.
  • Assessors are now required to show their work to prove they are valuing an applicable apartment property at the lowest of the three valuation approaches.

Indiana apartment owners and operators enter 2024 with new opportunities to lower their real property tax assessments. Under an updated law effective this year, Ind. Code § 6-1.1-4-39 (Section 39), for property tax assessment purposes assessors must value residential rental property with more than four rental units, including apartments, at the lowest of the three traditional approaches to value — the cost, the sales comparison and the income capitalization approaches — regardless of an appraiser’s opinion of the property’s market value. While prior versions of this statute had been in effect for nearly two decades, starting this year Indiana assessors must “show their work” and have the burden to demonstrate they are valuing an apartment property at the lowest value.

Apartments Hit With Higher Assessments

Section 39 protects Hoosier taxpayers from large property tax increases, particularly in active markets where sale prices and rents have increased rapidly over a short period. The law promotes steady and predictable changes in value. Nonetheless, Indiana assessors have not fully, fairly or consistently applied the “lowest of three” approaches assessment law for apartments. Instead, taxpayers in recent years have seen sharp increases from assessors adjusting apartment values upwards based on rising sale prices and rents for apartment complexes in the wake of the global pandemic, which has harmed not only apartment owners and operators but also their tenants (who ultimately bear the heavier property tax burdens by way of increased rents).

Assessors have used various tactics to impose hefty assessment increases for apartment complexes. With Indiana’s assessment system rooted in mass appraisal, assessors typically first calculate a property’s replacement cost using guidelines and schedules established by the Department of Local Government Finance (DLGF). Many assessors increase real property values by applying large trending or market factors to a building’s base costs or inflation percentages to land values. Others arbitrarily modify property records to artificially inflate the age, quality, or condition of the building improvements.

Starting in 2024, Legislature Bolstered Protections for Apartment Assessments

Assessors may not willfully ignore or elect to “opt out” of Section 39 — it is mandatory, and assessors must assess qualified apartments at the lowest applicable value. The General Assembly expanded the protections in Section 39, starting this year. First, using a form newly adopted by the DLGF, assessors annually must identify the values they determine using each of the three approaches to value as of the January 1 assessment date. Assessors cannot baselessly claim to have developed all three approaches; they must calculate values using all three approaches, thus “showing their work,” and apply the lowest determined value. Importantly, assessors may not arbitrarily manipulate their cost approach calculations to “back into” higher values supported by sales or income data. The new statute requires the cost approach to be based on the DLGF’s cost schedules, “without modifiers, adjustments, or other trending factors.”

Taxpayers May Enforce Section 39’s ‘Lowest of Three’ Values Mandate

Assessors have a dual burden under Section 39. They must show their residential rental property assessments are (i) correct and (ii) represent the lowest of the three approaches to value. If a taxpayer believes its apartment complex’s assessed value is excessive, it may file an appeal annually on or before June 15. (The assessment date that may be contested, either the current or prior year’s, depends on when the county issued its assessment notice for the property.) Upon request, the assessor is obligated to explain how the new assessment was calculated. Regardless of any explanation, the assessment may be challenged, first locally before the county board with further appeals permitted to the Indiana Board of Tax Review (IBTR) and, thereafter, the Indiana Tax Court. Before the IBTR, the rules of evidence generally apply and discovery tools are available to the parties. Hearings before the IBTR are formal, on-the-record events, where the parties must submit probative evidence and present persuasive arguments. While Indiana encourages informal discussions and settlements, taxpayers should be prepared to apply the full weight of the appeals process to compel assessors to comply with Section 39 and to apply a “lowest of three” approaches value.

Assessors must follow and apply Indiana law, as written, however that may impact the assessed values for apartment complexes. When they do not and excessive assessments result, taxpayers should review all of their options and consider taking the necessary steps to force application of a fair and reasonable assessment.

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