Real Estate Tax Calc
Why Lafayette attracts real estate investors
Lafayette and West Lafayette, Indiana form a market of approximately 90,000 to 100,000 people anchored by Purdue University, one of the largest universities in the United States by enrollment. Purdue’s size creates a significant and relatively stable base of rental demand from students, graduate researchers, faculty, and university staff. This demand has historically supported low vacancy rates for well-located rental properties near campus in West Lafayette and in convenient areas of Lafayette proper.
Beyond the university, the regional economy includes a significant healthcare sector (Franciscan Health), manufacturing operations (Subaru of Indiana Automotive plant in nearby Lafayette), and a growing technology and life sciences presence tied to Purdue’s research activities. This diversification provides rental demand that is not entirely dependent on student enrollment cycles.
From a tax perspective, Indiana is one of the more investor-friendly states in the Midwest. The flat income tax rate, which has been consistently declining through enacted legislation, eliminates the bracket-creep risk that investors face in progressive states. Indiana’s property taxes are moderate, and the state has no estate tax. The regulatory environment for landlords in Indiana is generally considered less burdensome than in many coastal states, without the strict rent control or habitability mandate complexity found in markets like San Francisco or New York City.
Indiana state income tax on rental income
Indiana imposes a flat adjusted gross income (AGI) tax on all Indiana-source income, including net rental income. The rate was reduced to 3.15% beginning with the 2023 tax year. Indiana has enacted legislation for further rate reductions, with the rate scheduled to continue declining toward 2.9% by 2027 under the legislation in place as of the enactment date. Investors should verify the current rate when filing, as the reductions are scheduled in steps and are subject to legislative action.
The flat structure means that all Indiana investors — from those with $20,000 in total income to those with $500,000 — pay the same percentage on their Indiana rental income. This is a significant advantage over progressive-rate states where high-income investors face materially higher marginal rates on rental income.
Indiana generally conforms to the federal treatment of rental income and expenses. Net rental income is calculated on federal Schedule E and carried through to the Indiana IT-40 or IT-40PNR (for nonresidents). Indiana does not require a separate state depreciation calculation for residential rental property — the federal 27.5-year MACRS depreciation flows directly to the Indiana return. However, Indiana may have its own conformity rules for bonus depreciation in specific years; investors with significant personal property in service should verify current Indiana conformity with a local CPA.
Passive activity loss rules apply in Indiana as they do federally. Suspended passive losses can offset future passive income or are released upon a taxable disposition of the passive activity (the sale of the rental property). Indiana allows the same passive activity loss deduction as the federal return in the year of sale.
Tippecanoe County income tax
In addition to the Indiana state income tax, Tippecanoe County levies its own county-level adjusted gross income tax. Indiana counties are authorized to levy local income taxes under Indiana Code, and most counties do so. The Tippecanoe County rate adds a percentage on top of the state 3.15% rate. County income tax rates in Indiana are set by the county council and can be adjusted over time; investors should verify the current Tippecanoe County rate at the time of filing, as it can change.
The county income tax applies to the same Indiana adjusted gross income base as the state tax. For rental income, this means the net rental income you calculate for Indiana state purposes is also subject to the county tax. The state and county taxes are both reported and paid on the same Indiana income tax return. From a combined state-plus-county standpoint, total Indiana and county income tax on rental income in Lafayette is still generally lower than the state-only rate in most other states.
Tippecanoe County property taxes for investment property
Indiana assesses real property at its true tax value, which is intended to approximate market value. The Tippecanoe County Assessor values properties annually, and the assessed value should generally track market values over time. Investment properties (non-homestead) do not receive the Indiana homestead deduction, which is available only to owner-occupants on their primary residences and reduces the assessed value subject to tax for owner-occupants by a significant amount. Without this deduction, investment properties are taxed on their full assessed value.
Combined state and county property tax rates in Tippecanoe County — reflecting school district, county, city or township, and library levies — typically produce effective rates on non-homestead investment properties in the 0.7% to 0.9% range of market value in the Lafayette and West Lafayette areas. West Lafayette city rates and Lafayette city rates may differ somewhat; properties in unincorporated Tippecanoe County may have different rate compositions. Always obtain the most recent tax bill for the specific parcel when underwriting an acquisition.
Indiana also has a property tax circuit breaker cap that limits property taxes to a percentage of the property’s gross assessed value: 1.5% for agricultural land and 2% for other real property (including rental property), with specific caps that apply. In practice, the circuit breaker cap means that property taxes on investment real estate in Indiana cannot exceed 2% of gross assessed value — providing a ceiling on property tax cost even if local rates were to increase significantly.
Property taxes paid on rental property are deductible as an ordinary and necessary business expense on Schedule E, reducing federal and Indiana taxable income. Because Indiana conforms to the Schedule E deduction, the deduction provides both federal and state income tax savings.
Worked example: $175,000 Lafayette rental near Purdue
Consider an investor purchasing a three-bedroom single-family rental in Lafayette for $175,000, targeting student or young professional renters. The property rents for $1,200 per month, producing $14,400 in annual gross rent.
Building depreciable basis: $175,000 × 80% building allocation = $140,000. Annual depreciation: $140,000 ÷ 27.5 years = $5,091 per year.
Operating expenses before depreciation: Property taxes (0.8% effective rate): $1,400. Insurance: $900. Maintenance: $1,500. Property management (8%): $1,152. Total: approximately $4,952.
Net income before depreciation: $14,400 − $4,952 = $9,448.
Net income after depreciation: $9,448 − $5,091 = $4,357.
Indiana state income tax (3.15%): $4,357 × 3.15% = approximately $137.
Tippecanoe County income tax (illustrative 2.9% county rate, verify current): $4,357 × 2.9% = approximately $126.
Total Indiana state + county income tax: approximately $263 per year — well below what most other states would charge on the same net rental income.
Federal income tax (22% bracket, illustrative): $4,357 × 22% = approximately $959.
This example illustrates why Indiana is considered a tax-efficient state for rental income: the combined state and county income tax is a small fraction of the federal tax liability, and the property tax burden is modest relative to the rental income produced.
Indiana capital gains treatment and exit planning
When you sell a Lafayette investment property, the gain is subject to both federal and Indiana income tax. Indiana taxes capital gains as ordinary income at the same flat rate that applies to other income. There is no preferential Indiana rate for long-term capital gains — a gain that would be taxed at 15% or 20% federally is taxed at 3.15% (or the current applicable rate) in Indiana.
The federal sale computation for a rental property involves: sale price minus selling expenses equals amount realized; amount realized minus adjusted basis (original basis minus accumulated depreciation) equals realized gain. The portion of the gain attributable to accumulated depreciation is subject to 25% federal unrecaptured Section 1250 gain recapture. Indiana taxes the entire gain (both the Section 1250 recapture portion and any additional gain) at the flat Indiana rate.
Indiana does not impose a transfer tax on real property sales — there is no Indiana real property transfer tax comparable to those in New York, California, or many other states. This is a meaningful cost saving on exit. There may be county recorder fees and other closing costs, but no ad valorem transfer tax.
A 1031 like-kind exchange defers both federal capital gains taxes and Indiana income taxes on the deferred gain. Indiana conforms to the federal 1031 exchange rules and does not impose a clawback if the replacement property is in another state. Indiana is one of the more straightforward states for 1031 planning because of its conformity and absence of additional state-level complications.
Purdue University rental market: what investors need to know
West Lafayette and the neighborhoods adjacent to Purdue’s main campus have historically produced strong rental demand, with student enrollment at Purdue running over 40,000 undergraduate and graduate students. This creates a natural demand floor for rental housing, particularly three and four-bedroom units that accommodate student roommate groups.
The Purdue rental market has some specific characteristics that investors should understand. Lease cycles tend to follow the academic calendar, with the primary leasing period in late fall and early spring for August move-ins. Vacancy risk is concentrated in early May through July before students return. Properties within walking distance of campus command premium rents relative to those requiring a commute. New apartment construction near campus — which has accelerated in recent years — creates competitive pressure on older single-family student rentals that lack updated amenities.
Investors in the student-adjacent rental market should budget for above-average turnover costs (cleaning, repainting, minor repairs at each lease termination) and consider whether to manage directly or use a local property manager with student-housing experience. Security deposit collections and move-out condition documentation are particularly important in the student rental segment to protect against damage claims.
Frequently asked questions
What is the Indiana income tax rate on rental income?
Indiana taxes net rental income at a flat rate. The state rate was reduced to 3.15% in 2023 and is scheduled to decrease further under enacted legislation. In addition, Tippecanoe County levies its own county income tax on top of the state rate. The combination of state and county income taxes on net rental income in Lafayette is generally lower than in most other states, making Indiana one of the more tax-efficient environments for rental property investors in the Midwest.
How are property taxes calculated for investment property in Tippecanoe County?
Indiana assesses property at its true tax value, which approximates market value. Tippecanoe County applies combined county, city (or township), and school district rates to the assessed value. Non-homestead investment properties do not receive the homestead deduction available to owner-occupants. Effective rates for investment properties in the Lafayette and West Lafayette area typically fall in the 0.7% to 0.9% range of assessed value, though specific parcels vary. Indiana’s circuit breaker cap limits non-homestead property taxes to 2% of assessed value.
Is Lafayette a good real estate investment market?
Lafayette and West Lafayette benefit from Purdue University’s large student and faculty population, which creates stable rental demand. The market offers lower acquisition prices than coastal markets, a relatively landlord-friendly regulatory environment, and Indiana’s low flat income tax. Investors should focus on proximity to campus and the quality of the tenant pool in different neighborhoods. The local economy is anchored by Purdue, healthcare, and manufacturing, providing diversified demand beyond student housing alone.
Are capital gains taxed differently in Indiana?
Indiana taxes capital gains from the sale of investment property as ordinary income at the same flat rate that applies to other income. There is no preferential Indiana rate for long-term capital gains. Federally, long-term capital gains are taxed at preferential rates. Indiana also taxes depreciation recapture as ordinary income at the flat state rate. Indiana imposes no real property transfer tax at the state level on sale, which reduces transaction costs at exit compared to states with transfer taxes.
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.