Indiana Residential Tax Increment Finance (TIF)

In rural communities facing financial gaps, finding developers to build homes can often be a challenge. Housing TIF (Tax Increment Financing) areas offer a revenue stream for local governments to finance public infrastructure and incentivize developers. By leveraging TIF revenue to fund important public infrastructure including roads, sidewalks, and water and sewer lines in new neighborhoods, it lowers costs for developers and provides future homeowners the opportunity to purchase a more affordable new home. Additionally, current and prospective employers prefer their employees reside close to their facilities – allowing for shorter commutes and better work-life balance.

The City of Nappanee, Indiana, implemented a successful housing TIF area known as the Wellfield Housing Development. Developed by R. Yoder Construction, this project included 20 duplex villas, 29 single-family homes ranging from $400,000 to $500,000 and six estate homes priced at $765,000.

Phase one of the neighborhood will be built out over the course of six years, with public infrastructure costs amounting to approximately $2.25 million. The funding for this infrastructure was made possible through developer-purchased Economic Development Commission (EDC) bonds payable from 25 years of Residential Housing TIF, with a par amount of $2.915 million.

Did you know?
In Indiana, the assessed value of homes, or the number of homes to be built in a new neighborhood, need to be higher to make it worthwhile to setup residential housing TIF for funding public infrastructure. For example, an estimated tax calculation for a home with a gross assessed value of $300,000 would result in a net assessed value of $163,800. This would lead to annual taxes of $3,000 per home at a 1% tax cap.

Several legislative changes in 2023 have further improved local housing incentives, creating favorable conditions for residential development.

Residential Housing TIF areas
Residential TIF areas no longer require Department of Local Government Finance (DLGF) approval for establishment – and proposed residential TIF areas no longer require the approval of affected school corporations. Additionally, the lifespan of residential TIF area has been reduced from 25 years to 20 years from the date the first obligated incurred. These changes apply until July 1, 2027.

Residential Housing Infrastructure Assistance Program (HEA 1005)
This program establishes the residential housing infrastructure assistance program (program) and revolving fund (fund) to be administered by the Indiana Finance Authority (IFA) for political subdivisions to attain loans for certain infrastructure projects related to the development of residential housing. The loans may not be used for debt repayment, maintenance and repair projects, upgrading utility poles or consulting or engineering fees for studies, reports, design or analyses. The loans must be allocated as follows:

• 70% of the money in the fund must be used for housing infrastructure in municipalities with a population of less than 50,000
• 30% of the money in the fund must be used for housing infrastructure in all other political subdivisions

In determining loans awarded from the fund, priority will be given to projects that:

• invested in a housing study within the last five years
• performed a housing study through a local economic development organization; or,
• demonstrated the need for housing inventory as indicated by the Indiana state housing dashboard

TIF, including Residential TIF, may be used as a repayment source under HEA 1005.

Don’t forget!
When developing housing programs, it’s important to consider additional incentives for your affordable housing projects. Historic Tax Credits and Low Income Housing Tax Credits (LIHTC) are resources that can be utilized to reduce your community’s reliance on local incentives.

To discuss how you can leverage these opportunities and explore incentives within your community, reach out to your Baker Tilly municipal advisor.