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STATE OF INDIANA Page 1 of 10 INDIANA GOVERNMENT CENTER NORTH 100 NORTH SENATE AVENUE N1058(B) INDIANAPOLIS, IN 46204 PHONE (317) 232-3777 FAX (317) 974-1629 DEPARTMENT OF LOCAL GOVERNMENT FINANCE Frequently Asked Questions Homestead Standard Deduction and Other Deductions November 1, 2018 For additional information regarding deductions, please visit http://www.in.gov/dlgf/2344.htm. HOMESTEAD DEDUCTION TERMS DEFINED 1. Question: What is a “dwelling”? “Dwelling” means any of the following: • Residential real property improvements, which an individual uses as his or her residence, including a house or garage; • A mobile home that is not assessed as real property that an individual uses as the individual’s residence; or • A manufactured home that is not assessed as real property that an individual uses as the individual’s residence. IC 6-1.1-12-37(a)(1). 2. Question: What is a “homestead”? “Homestead” means an individual’s principal place of residence: • that is located in Indiana; • that: o the individual owns; o the individual is buying under a contract recorded in the county recorder's office, or evidenced by a memorandum of contract recorded in the county recorder’s office under IC 36-2-11-20, that provides that the individual is to pay the property taxes on the residence, and that obligates the owner to convey title to the individual upon completion of all of the individual’s contract obligations; o the individual is entitled to occupy as a tenant-stockholder (as defined in 26 U.S.C. 216) of a cooperative housing corporation (as defined in 26 U.S.C. 216); or o is a residence described in IC 6-1.1-12-17.9 that is owned by a trust if the individual is an individual described in IC 6-1.1-12-17.9 and ---PAGE BREAK--- Page 2 of 10 • that consists of a dwelling (including residential yard structures attached to the dwelling such as decks, patios, gazebos or other residential yard structures not including a swimming pool) and the real estate (up to one acre) that immediately surrounds that dwelling. IC 6-1.1-12-37(a)(2) and IC 6-1.1-12-37(m). Except as provided in IC 6-1.1-12-37(k), the term “homestead” does not include property owned by a corporation, partnership, limited liability company or other entity. Per IC 6-1.1-12-37(k), “homestead” includes property that satisfies each of the following requirements: • The property is located in Indiana and consists of a dwelling and the real estate (up to one acre) that immediately surrounds that dwelling; • The property is the principal place of residence of an individual; • The property is owned by an entity other than an individual, tenant-stockholder or trust; • The individual residing on the property is a shareholder, partner or member of the entity that owns the property; and • The property was eligible for the homestead standard deduction on March 1, 2009. 3. Question: What is a “principal place of residence”? “Principal place of residence” means an individual’s true, fixed, permanent home to which the individual has the intention of returning after an absence. 50 IAC 24-2-5. DATES/DEADLINES 4. Question: What is the deadline by which deduction(s) applications must be filed in order to receive the deduction(s) for the following calendar year’s property tax bills? With respect to real property, the application must be completed and dated in the calendar year for which the person wishes to obtain the deduction and filed with the county on or before January 5 of the immediately succeeding calendar year. With respect to personal property mobile or manufactured homes, the application must be completed, dated, and filed with the county during the twelve (12) months before March 31 of each year for which the individual wishes to obtain the deduction. 5. Question: Does the December 31 application deadline change the “ASSESSMENT DATE” to December 31 as well? What if a property was vacant land on the assessment date (January 1) but has a home on it as of December 31? January 1 remains the assessment date for all real and personal property (except annually assessed personal property mobile/manufactured homes which are assessed January Although a deduction applicant is not required to own a property as of January 1 in order to claim deductions on the property, it is still the assessment date. ---PAGE BREAK--- Page 3 of 10 If, after January 1, a person moves from a property that existed on January 1 to a property that did not exist on January 1 and the person applies for a homestead deduction for the second property, the deduction on that first property must be cancelled for that tax cycle. The person could potentially receive a homestead deduction on only the property that did not exist on January 1(IC 6-1.1-12-37(p)). 6. Question: In order for a deduction to apply, by which dates must the property be conveyed to the new owner? The conveyance resulting in ownership and the application for the deduction must be completed and dated during the calendar year (January 1 to December 31) and filed with the county on or before January 5 of the succeeding calendar year to receive the benefit of the deduction. 7. Question: At what point are the deductions removed? Which year? If the deduction is on the property as of the assessment date and the owner of the property becomes ineligible during the calendar year, the deduction should remain on the property for the property taxes due and payable in the following year and then be removed. For example, the homestead standard deduction is accurately applied to a property as of January 1, 2019, but the property owner becomes ineligible for the deduction on or before December 31, 2019. The homestead deduction should remain on the property for the 2019 pay 2020 property taxes and be removed for 2020 pay 2021 unless a new owner purchases the property and meets all eligibility requirements, including filing, for his own homestead standard deduction for 2020 pay 2021. FORECLOSURES 8. Question: A taxpayer owned a house and had a homestead filed on it. In September 2018, it was foreclosed on and deeded to the bank. When should the homestead be removed? Assuming the homestead was accurately applied to the property as of January 1, 2018, the homestead deduction will be applied to the 2018 pay 2019 property taxes regardless of changes in ownership or eligibility which occurred later in the year. Because the bank will not be eligible to claim its own homestead on the property, the deduction should be removed from the property beginning with the 2019 pay 2020 property taxes unless a new owner purchases the property and meets all eligibility requirements, including filing, for his own homestead deduction. APPLYING DEDUCTIONS TO SPLIT PARCELS 9. Question: What about a buyer who purchased only one acre and a house out of a larger tract of land? How is this to be handled regarding deductions? January 1 is still the assessment date for all real and personal property. This is particularly important to keep in mind with regards to “splits.” Think of a “split” as when would it be in place for assessment purposes. In other words, use the January 1 assessment date as a cut-off – a ---PAGE BREAK--- Page 4 of 10 “split” existing on or before the January 1, 2018 assessment date is effective for 2018 pay 2019. any “split” in place after the January 1, 2018 assessment date is for 2019 pay 2020. Although the “split” may not be assessed as a separate property until the following year, if the property owner meets all eligibility requirements including the application deadlines, deductions may be applied to the property in the current year. For example, an individual purchases one acre and a house from a larger parcel on January 2, 2019. The “split” will not take effect until 2019 pay 2020. However, the individual completes and dates the deduction application by December 31, 2018 and files it on or before January 5, 2019. Assuming the individual meets all eligibility requirements for those deductions, they will be applied to the parcel for the 2018 pay 2019 property taxes. HOMESTEAD STANDARD DEDUCTION 10. Question: Who is eligible to claim a homestead standard deduction? Is a Limited Liability Company (LLC) eligible for the homestead standard deduction? Per IC 6-1.1-12-37(a)(2)(B), an individual who, on the assessment date or any date in the same year after an assessment date when an application is filed, either: Owns the residence; Is buying the residence under a contract, recorded in the county recorder’s office, that provides that the individual is to pay the property taxes on the residence; or Is entitled to occupy the residence as a tenant-stockholder (as defined in 26 U.S.C. 216) of a cooperative housing cooperation (as defined in 26 U.S.C. 216). A trust is entitled to the homestead standard deduction for property consisting of a dwelling that is owned by the trust and occupied by an individual if the county auditor determines that the individual meets the following criteria under IC 6-1.1-12-17.9: Upon verification in the body of the deed or otherwise, has either: a. A beneficial interest in the trust; or b. The right to occupy the real property rent free under the terms of a qualified personal residence trust created by the individual under United States Treasury Regulation 25.2702-5(c)(2); and Otherwise qualifies for the deduction; and Would be considered the owner of the property under IC 6-1.1-1-9(g). Per IC 6-1.1-12-37(k), a corporation, partnership, LLC or other entity may only receive the homestead standard deduction if the property satisfies the following requirements: The property is located in Indiana and consists of a dwelling and the real estate (up to one acre) that immediately surrounds that dwelling; The property is the principal place of residence of an individual; The property is owned by an entity other than an individual, tenant-stockholder or trust; ---PAGE BREAK--- Page 5 of 10 The individual residing on the property is a shareholder, partner or member of the entity that owns the property; and The property was eligible for the homestead standard deduction on March 1, 2009. 11. Question: When someone applies for the homestead standard deduction do they have to be living in the property on or before December 31 to receive the deduction for the property taxes due and payable in the following year? The individual must meet all eligibility requirements on the date the deduction application is completed and dated. In order to receive a homestead deduction, the property must be the individual’s “principal place of residence.” If the owner of the property on the assessment date had the deduction accurately applied to the property, the deduction will be applied to the property taxes due and payable in the following year. For example, the property owner accurately has the homestead deduction applied to the property as of January 1, 2018. The property owner then changes the use of the property to a rental later in the year. The homestead deduction will be applied to the 2018 pay 2019 property taxes although the property owner is no longer living on the property as of December 31, 2018. (The deduction will be removed for the 2019 pay 2020 property taxes.) 12. Question: Does it matter if the previous owner of a home that a new owner is moving into has the homestead standard deduction? If the previous owner had the homestead deduction accurately applied to the property as of the assessment date, the new owner will receive the benefit of that deduction on the property taxes due and payable in the following year. For example, if the previous owner had the homestead deduction accurately applied to the property as of January 1, 2018, the new owner will receive the homestead deduction on the 2018 pay 2019 property taxes regardless of whether or not the new owner meets eligibility requirements or has filed his or her own deduction application. In order for the new owner to continue receiving the homestead deduction in 2019 pay 2020 and thereafter, the individual would need to meet all eligibility requirements and complete and date an application by December 31, 2019 and file the application by January 5, 2020. 13. Question: Can more than one individual or married couple receive a homestead standard deduction for the same property in the same year? Only one married couple may receive a homestead standard deduction for a particular homestead property in a year. However, if two unmarried individuals own a property and one of them uses that property as his or her homestead, that individual is not precluded from applying for the homestead deduction even if his or her co-owner receives a homestead deduction on another property where they live. 14. Question: A married couple owns two homes. The husband and wife each claim to be living in a different home, can they both have a homestead standard deduction? ---PAGE BREAK--- Page 6 of 10 A married couple is limited to one homestead standard deduction statewide regardless of living arrangements or how the properties are deeded. Under IC 6-1.1-12-37(h), the county auditor may not grant an individual or a married couple a homestead standard deduction if the individual or married couple, for the same year, claims the deduction on two or more different applications for the deduction and the applications claim the deduction for different property. This same limitation applies whether the homes are located in the same or different counties. There is a narrow exception to this prohibition where one spouse lives out of state and each spouse individually owns and maintains his and her own principle places of residence. (IC 6-1.1- 12-37(n)). If the property owned by the individual’s spouse is located outside Indiana, the individual must file an affidavit with the county auditor containing the following information to receive the deduction: The names of the county and state in which the individual’s spouse claims a deduction substantially similar to the deduction allowed under IC 6-1.1-12-37. A statement made under penalty of perjury that the following are true: That the individual and the individual’s spouse maintain separate principal places of residence. That neither the individual nor the individual’s spouse has an ownership interest in the other’s principal place of residence. That neither the individual nor the individual’s spouse has, for that same year, claimed a standard or substantially similar deduction for any property other than the property maintained as a principal place of residence by the respective individuals. If on January 1, 2018 two individuals each own a home and are receiving the homestead standard deduction on each of those individual properties, the one homestead standard deduction limitation does not apply should the couple marry and apply for the homestead standard deduction on their joint residence. The homesteads will remain on the individual properties of the spouses for 2018 pay 2019 without affecting the eligibility of the married couple to receive the homestead standard deduction on their joint property for 2019 pay 2020. 15. Question: A father has a life estate with the remainder interest going to his sons. One of his sons is living on the property, but the father is not. Can the son receive the homestead standard deduction on the property? In order to receive the homestead standard deduction, the son must be considered an owner of the property. IC 6-1.1-1-9(f) states that when a life tenant of real property (the father in this example) is in possession of the real property, the life tenant is the owner of that property. Upon the death of the father, ownership of the property will transfer to the sons. The property is the son’s principal place of residence, but he does not own the property until his father’s death. Therefore, the son is ineligible to receive the homestead deduction on the property. In addition, since the property is not the principal place of residence of the father, he also is ineligible to receive the homestead deduction on the property. ---PAGE BREAK--- Page 7 of 10 16. Question: Can an individual residing in a nursing home or long-term care facility still receive the homestead standard deduction? An individual may receive the homestead standard deduction if the individual is absent from the property while in a nursing home, hospital, or assisted living facility so long as the property is being maintained as the individual’s residence and the individual has the intention of returning to the property. 17. Question: A county has a lake that is surrounded by cottages. Some of the residents of these cottages are out-of-state residents that live on the lake only in the summertime. Are the out-of-state residents entitled to a homestead standard deduction on their Indiana lake cottage? In order to receive a homestead deduction on the Indiana property, the individual/married couple must establish that the property is their principal place of residence and that a homestead-type deduction is not received by the individual/married couple in any other county or state. In order to determine eligibility, the county auditor may request proof that the property is the applicant’s principal place of residence. Per IC 6-1.1-12-37(j), the auditor may limit the proof of eligibility to a state income tax return, valid driver’s license, or a valid voter registration card. The auditor is not prohibited from requesting other forms of documentation. If the county auditor is satisfied that the individual/married couple utilizes the lake cottage as the “principal place of residence” (as defined in 50 IAC 24-2-5) and the individual/married couple are not receiving homestead benefits on any other property, the homestead standard deduction may be applied to the lake cottage. 18. Question: What are the penalties for falsely claiming the deduction? Under IC 6-1.1-12-37(f), a taxpayer will be liable for any additional taxes that would have been due on the property plus a 10% civil penalty on the additional taxes due if he or she fails to notify the county auditor that he or she is not eligible to receive the homestead deduction. Back taxes may be charged back to 2018 pay 2019 under IC 6-1.1-36-17 if an individual falsely receives the homestead. Additionally, IC 6-1.1-37-3 specifies that an individual commits a Level 6 felony if they make and subscribe a property tax return, statement, or document that the individual does not believe is correct in every material respect, and the return, statement or document is certified as to the truth of the information appearing in it. 19. Question: A taxpayer owns a house and has a homestead filed on it. She moved out of the house in August of 2018 and the property is now being used as a rental. When should the homestead deduction be removed? Would that be the same case if the mortgage and over 65 deductions also were applied to the property? ---PAGE BREAK--- Page 8 of 10 Assuming the taxpayer accurately had the homestead deduction applied to the property as of January 1, 2018, the deduction will be applied to the 2018 pay 2019 property taxes. The deduction will be removed beginning with the 2019 pay 2020 property taxes. The mortgage deduction does not require the property be the taxpayer’s residence. Therefore, so long as she remains an Indiana resident and continues to meet all other eligibility requirements the mortgage deduction may remain on this property. The Over 65 Deduction requires the property be the individual’s residence. Therefore, the same guidelines as outlined above for the homestead deduction would apply. Assuming Ms. Green accurately had the Over 65 Deduction applied to the property as of January 1, 2018, the deduction will be applied to the 2018 pay 2019 property taxes. The deduction should be removed beginning with the 2019 pay 2020 property taxes. Lastly, if an individual who is receiving the homestead standard deduction changes the use of the property so that it no longer qualifies for the homestead standard deduction the taxpayer by changing the use from homestead to rental property), the individual is required to file a certified statement with the county auditor notifying the auditor of the change of use within sixty (60) days after the date of that change. An individual who fails to file the statement with the county auditor is liable for any additional taxes that would have been due on that property plus a civil penalty equal to ten percent (10%) of the additional taxes due. 20. Question: A property receiving an exemption is sold to an individual on April 1, 2018. The new owner completes and dates a homestead deduction application by December 31, 2018 and files the application by January 5, 2019. Does the new owner get the non-profit exemption for 2018 pay 2019 or is it removed and the homestead granted? The exemption will be removed when the property is sold because it is no longer eligible for an exemption following the transfer. Assuming the new owner meets all eligibility requirements, the homestead deduction will be applied for 2018 pay 2019. MORTGAGE DEDUCTION 21. Question: Can a husband and wife each file for a mortgage deduction? Per IC 6-1.1-12-1(b), each year a person, who is a resident of Indiana, may receive a mortgage deduction for mortgaged real property that he or she owns. A person may not have more than one mortgage deduction in his or her name. However, if a married couple owns two pieces of property and each property is mortgaged in the spouses’ names, one spouse could have a mortgage deduction in his name on one property while the other spouse has a mortgage deduction in her name on the other property. 22. Question: Sam buys a house after January 1, 2018. The house has a mortgage deduction on it from the previous owner. Can Sam receive this deduction for the 2018 pay 2019 property taxes? ---PAGE BREAK--- Page 9 of 10 Assuming the previous owner’s mortgage deduction was accurately in place as of January 1, 2018, Sam will receive the benefit of this mortgage deduction on his 2018 pay 2019 property taxes. In order to continue receiving the benefit of the mortgage deduction on his 2019 pay 2020 property taxes, Sam must meet all eligibility requirements for the deduction, date and complete the deduction application by January 5, 2019. DISABLED VETERAN DEDUCTIONS 23. Question: A widowed woman was married to a disabled veteran of the armed forces. While he was living, the deceased veteran’s name was not on the deed to the property. The widow wants to apply for one of the disabled veteran’s deductions on that property. Is the widow eligible to receive the veteran’s deduction? The surviving spouse of a veteran may receive the veteran deduction if the veteran satisfied the eligibility requirements of the applicable deduction at the time of his death and the surviving spouse owns or is buying the property under contract at the time the deduction application is filed. The surviving spouse is entitled to the deduction regardless of whether the property for which the deduction is claimed was owned by the deceased veteran or the surviving spouse before the deceased veteran’s death. However, there is a deduction for the surviving spouse of a World War I veteran, per IC 6-1.1-12-16, and a surviving spouse receiving that deduction cannot also receive the partially disabled veteran deduction (IC 6-1.1-12-13). SALES DISCLOSURE FORM AS AN APPLICATION 24. Question: Who keeps the original sales disclosure form when it is used an application for deductions? The county assessor is required to keep the original sales disclosure from for five years. Per the Indiana County Auditor Retention Schedule Record Series AU 10-7, the county auditor is required to keep the copies of each deduction application for at least three calendar years after the sale of property, death, refinance, or other termination of a mortgage, and after the receipt of a Indiana State Board of Accounts Audit Report and the satisfaction of any unsettled charges. 25. Question: What if a sales disclosure form is signed on December 31 but not filed until two weeks later? What date should be used for applying the deduction? Is there a deadline for title companies to submit sales disclosure forms to the county auditor? Indiana Code 6-1.1-12-44 provides that a sales disclosure form: that is submitted: as a paper form; or electronically; on or before December 31 of a calendar year to the county assessor by or on behalf of the purchaser of a homestead assessed as real property; that is accurate and complete; ---PAGE BREAK--- Page 10 of 10 that is approved by the county assessor as eligible for filing with the county auditor; and that is filed: as a paper form; or electronically; with the county auditor by or on behalf of the purchaser; constitutes an application for the solar energy heating or cooling system deduction, the wind power device deduction, the hydroelectric power device deduction, the geothermal energy heating or cooling device deduction, and homestead deductions with respect to property taxes first due and payable in the following calendar year.