Indiana introduces new tax rules for short term rental properties effective July 2025

Indiana's Senate Bill 411 is set to reshape the landscape of short-term rental properties across the state, introducing significant tax implications for homeowners and investors alike. Introduced on January 13, 2025, the bill aims to clarify the tax status of properties rented out on a short-term basis, particularly those that qualify as homesteads.

At the heart of Senate Bill 411 is a provision that disqualifies properties from receiving the standard homestead deduction if they are rented as short-term rentals for two consecutive years. This means that homeowners who occasionally rent out their homes will face increased tax burdens, as their properties will no longer be eligible for the standard deduction after the second year of rental activity. The bill also stipulates that properties not occupied by their owners and rented as short-term rentals will be taxed at the same rate as commercial hotels or motels, further aligning the tax treatment of these rentals with traditional lodging businesses.

The bill has sparked notable debates among lawmakers and stakeholders. Proponents argue that the legislation is necessary to level the playing field between short-term rentals and traditional hospitality businesses, which often bear higher tax rates. Critics, however, warn that the new tax structure could discourage homeowners from renting their properties, potentially reducing the availability of short-term rental options for visitors and impacting local economies that rely on tourism.

As the bill moves through the legislative process, its implications could be far-reaching. Experts suggest that if passed, it may lead to a decline in short-term rental listings, particularly in popular tourist destinations within Indiana. This could create a ripple effect, affecting local businesses that benefit from the influx of visitors who utilize these rentals.

Senate Bill 411 is poised to be a pivotal piece of legislation in Indiana's ongoing conversation about housing, tourism, and taxation. With its effective date set for July 1, 2025, stakeholders are closely monitoring its progress and preparing for the potential changes it will bring to the short-term rental market in the state.