The Indiana Circuit Breaker: 1%, 2%, 3% Caps on the Bill

Indiana’s constitutional cap — the circuit breaker — works on the bill, not on any value. That placement is the whole mechanism: local budgets set rates, rates are applied to assessed values, and only then does the cap check the result. A property’s assessed value can rise by any percentage lawfully; what is bounded is what its owner can be made to pay.

The three caps, measured against gross assessed value

• 1% of gross assessed value for homesteads (homestead, residential, and long-term care property).
• 2% for other residential and agricultural land.
• 3% for all other property — commercial, industrial, and business personal property.

The base matters as much as the percentages: the caps are computed against gross assessed value — before deductions like the standard or homestead deductions reduce it. The DLGF’s Tax Bill 101 works the sequence in full: gross AV → deductions → net AV → × rate → local and state credits → then the cap check.

The cap credit: computed per property class

If the computed tax exceeds the cap, the excess is removed by a cap credit on the bill. The comparison is made separately for each property class on the parcel — a homestead with a garage apartment, or a farm with commercial outbuildings, runs the test once per class, not once for the whole parcel. This is why two owners in the same taxing district with the same total assessment can have different cap outcomes: the mix of classes differs.

Worked example (illustrative)

Illustrative arithmetic with made-up round numbers — modeled on the DLGF’s own worked structure, not your property.

1. Inputs: homestead with gross assessed value $250,000, no other classes; net AV after deductions $225,000; the district’s rate produces a tax of $2,700 before the cap check; 1% of gross AV is $2,500.
2. Step — the test: $2,700 > $2,500, so the cap binds.
3. Step — the credit: a $200 cap credit brings the bill to $2,500 — exactly 1% of gross assessed value.
4. Step — the shift: the $200 does not vanish: it becomes a charge the local units’ levies absorb, and the state’s Aid to Local Governments flow addresses. The rate on the bill is unchanged; the cap credit is doing the limiting.

What this tells you: the cap is checked against gross value while the tax is computed on net value after deductions — which is why a homestead can pay well under 1% of its market value after deductions stack, and why the cap may never appear on your bill at all in a low-rate district.

What it does not tell you: your bill depends on your district’s rate and your deductions; the cap only bounds the result. And because the caps do not change the local rate, an appeal that lowers your assessment still lowers your bill — the Form 130 process remains worth running even in a capped district.

Outside the caps: referendum projects

Two categories sit outside the caps entirely, and they explain bills that seem to break the rules:

• Referendum-approved building projects — capital projects voters approved by referendum are exempt.
• School operating funds approved by referendum — the caps table adjusts for the exempt rate share.

A bill that exceeds 1%/2%/3% of gross value is not necessarily wrong; check whether a referendum rate is on it before concluding an error.

Senior citizens: one more layer

Eligible senior citizens can take an additional credit holding their taxes to 2 percent above what was due the previous year — a year-over-year bound on top of the gross-value caps, and the only place in the Indiana system where last year’s bill controls anything.

What this page does not cover

The deduction programs themselves (standard, homestead, mortgage, over-65) and the state’s levy-growth controls on the spending side are outside this page. The DLGF’s Tax Bill 101, cited below, is the authority for the caps’ arithmetic.