Indiana Legislative Moves That Will Impact the Real Estate Industry

The Indiana General Assembly recently closed its 2024 legislative session without much fanfare, but a few of the bills that passed are noteworthy for real estate developers and investors. Maybe equally important for the real estate industry is what didn’t make its way into final legislation.

Is Your Property “TIF-able”?

Tax increment financing (TIF) is a tool used to help fund specific economic development projects. When an area is designated as a TIF district, the local government can capture future increased tax dollars generated due to developments in that district. The incremental taxes it believes the redevelopment will generate can be quantified and issued as a bond for up-front use in paying for the redevelopment itself. Once the redevelopment is complete and begins generating property tax, that tax pays down principal or interest on the bonds until the bond is paid off. TIF is used to encourage growth in specific areas, assist in the acquisition of real estate, initiate infrastructure projects, fund improvements to enhance areas with trails and parks, and so much more.

During the 2024 legislative session, House Bill 1120 was introduced. It included language that would change how TIF could be used:

“Prohibits a redevelopment commission from removing a parcel of real property from … an existing tax increment financing district, and subsequently adding the same parcel of real property back into … the tax increment financing district during the life of the district.”

Critics of the bill took issue with this language. It read as if jurisdictions would have been unable to remove a parcel of real property from one TIF district and place it in another. Developers use this tactic often, working with jurisdictions to create and utilize single-site TIF districts to maximize the incremental property tax captured and achieve certain development goals.

Additionally, this language could limit or restrict further redevelopment. If, for example, a developer wanted to buy property already in a TIF district and change its use (e.g., shifting it from a commercial property into residential and restaurant property), they may be discouraged from doing so if they’re unable to qualify that project under a new TIF arrangement.

Fortunately for developers, this text was removed from the final bill.

Can Apartments Be “TIF-ed”?

Another interesting TIF-related development in House Bill 1120 is the restriction on TIF-ing residential property. Lawmakers passed a bill in 2022 that not only changed the definition of residential property to include apartment buildings but also disallowed TIF to be used for residential redevelopment. These changes were initially effective beginning June 30, 2024. House Bill 1120 pushed this start date out by one year to June 30, 2025.

Changing the residential property definition was problematic because apartment complexes are commonly constructed or redeveloped using TIF. Developers are certainly happy to get one more year before they must comply with this new law, but they know that come June 30, 2025, they will be facing the same issue. What will the future hold? Can developers expect to use TIF on future apartment and other residential redevelopment projects, or will legislators allow these changes to become effective in 2025?

Why Is TIF Trending Right Now?

These trends in TIF understandably worry developers as they question whether they can rely on TIF going forward. The fear looms that legislators will attempt to restrict TIF even further when the General Assembly has more time to consider new legislation in 2025.

Opponents of TIF are always voicing their concerns, arguing that TIF prevents tax revenue parity. In an article published last year, Huntingburg Regional Airport’s manager said that TIF districts were like fishing nets: they only benefit the entity that casts them. While TIF brings in additional revenue for businesses within the taxing district, those outside of TIF districts – like many airports – receive no benefit. Interestingly enough, what some opponents may not fully realize is that TIF, while still a valuable tool, does not provide developers as much funding as it once did given the current economic climate (i.e., high interest rates). And those in favor of TIF may argue that the economic benefits associated with a TIF project cast a much wider net, bringing benefit to the broader community.

It’s unlikely that TIF will be eliminated altogether, but every year, there is more and more opposition to it. And this year, that opposition was reflected in draft legislation. It’s important to follow these trends in order to know what tax incentives and financing opportunities could be on the chopping block for developers in the future.

What Else Should Developers and Investors Be Thinking About?

Two other bills came out of this legislative session that developers and investors should take note of.

Downtown Economic Enhancement District

In the original text of House Bill 1199, legislators sought to repeal the Mile Square Downtown Economic Enhancement District (EED) law. The downtown EED, which was created in last year’s legislative session, would assess, tax, or levy property owners located within the designated district in downtown Indianapolis and earmark those funds for initiatives such as public safety enhancements and homeless outreach. The final bill’s language didn’t repeal the EED, but it made a few other changes:

• Expanded the district beyond just one square mile
• Placed a $5.5 million cap on revenues generated by the EED
• Required the EED to go through the city-county council approval process and public comment before it could be re-established

The deadline for final city-county council approval is Dec. 31, 2024, which means that property owners within the EED likely won’t receive their first property assessment for EED purposes until 2025.

Homestead Deduction

In 2023, legislators passed a law that inadvertently removed the ability for taxpayers to claim a homestead deduction if their principal residences were owned by an entity, such as an LLC. This year, the legislature corrected this oversight. House Bill 1120 retroactively “fixed” the homestead deduction so that taxpayers can take the deduction even if their personal place of residence is owned by an entity – as long as they are a shareholder, partner, or member of that entity.

Developers could very well see some of these topics come back in 2025. Next year is a budget year for the Indiana General Assembly, and there are already indicators that significant discussion regarding property taxes and economic development tools could be on the horizon for the commercial real estate industry.

For more information about this or other legislation that might impact your real estate business, contact us.