Indiana 2026 Tax Changes — What Residents & Business Owners Must Know
On January 1, 2026, major federal tax changes take effect as prior temporary provisions expire and updated rules continue under new legislation.
Indiana residents will feel these federal changes directly — and because Indiana uses federal AGI to calculate state taxable income, many Hoosiers will experience increases in state income tax as well.
This Affects:
- W-2 earners in Indianapolis, Fort Wayne, Evansville, South Bend, Carmel, Bloomington
- Teachers, nurses, state workers, and manufacturing employees
- Small business owners, LLCs, S-Corps, and freelancers
- Farmers and rural families
- Real estate investors, landlords, and STR operators
- Families with children
- Dual-income households
- Retirees drawing from retirement accounts
Key Federal Changes Impacting Indiana Residents
Standard Deduction Shrinks in 2026
Indiana residents — especially married couples, families, and homeowners — will see higher taxable income beginning in 2026.
Middle-income households across the state may lose thousands of dollars in deduction value.
Federal Tax Brackets Increase
Federal brackets rise for all income levels:
- 12% becomes 15%
- 22% becomes 28%
- 24% becomes 31%
- dual-income households
- professionals working in Indianapolis tech, healthcare, and public sectors
- manufacturing and logistics employees
- teachers, nurses, and state workers
- households earning between $60K–$250K
Higher federal taxable income means larger overall tax bills.
QBI (20% Business Deduction) Remains Federal; Indiana Does Not Mirror It
QBI continues at the federal level, but Indiana does not offer a matching 20% deduction for state tax purposes.
- Federal taxable income may be lower for qualifying business owners
- Indiana taxable income does not receive the same reduction
- Business owners must plan for both federal and state implications
- trades and construction workers
- real estate agents
- freelancers and independent contractors
- LLC and S-Corp owners
- small manufacturers and service providers
Child Tax Credit Shrinks
- The federal Child Tax Credit reduces from about $2,000 → to around $1,000
- Refundability decreases
- Phase-out thresholds tighten
Families in Indianapolis suburbs, Fort Wayne, Evansville, and other growing areas will notice decreased refunds.
Marriage Penalty Returns
Many Indiana households rely on two incomes.
- couples filing jointly
- families with two mid-level incomes
- households with dependents
- couples earning between $75K–$200K combined
Joint incomes push couples into higher brackets faster under 2026 rules.
Indiana-Specific Tax Considerations
1. Indiana Uses Federal AGI as the Basis for State Income Tax
Indiana charges a flat state income tax rate, plus local county income taxes.
- lower federal deductions
- higher federal brackets
- reduced federal credits
…all increase Indiana taxable income as well.
Even small federal shifts can trigger larger state and county tax bills.
2. Real Estate, Rentals, and Property Sales Will Be More Heavily Taxed
Indiana’s real estate markets are growing rapidly — especially in Indianapolis, Carmel, Fishers, Fort Wayne, and suburbs across the state.
- capital gains from sales
- depreciation benefits
- classification of rental losses
- STR rules and required documentation
- timing of selling investment property
Investors should evaluate their 2025–2026 strategies carefully.
3. STR (Short-Term Rental) Owners Face New Requirements
- Indianapolis
- Bloomington
- South Bend (football weekends)
- Brown County
- Lake Michigan communities
- reduced depreciation
- new participation rules
- stricter documentation
- updated safe harbor definitions
4. Retirement Planning Matters Even with Indiana’s Rules
Indiana does not tax Social Security, but many other types of retirement income are taxable at the state level.
- IRA withdrawals
- 401(k) distributions
- pension payouts
…all become more expensive.
Who Is Hit Hardest in Indiana (2026)
- Dual-income households
- Homeowners in growing metro areas
- Business owners, LLCs, and contractors
- Real estate investors and landlords
- STR operators near travel and event hotspots
- Families with children
- Retirees drawing taxable retirement income
- Middle-income earners
What Indiana Residents Should Do Before December 31, 2025
- Review federal and state withholding
- Maximize retirement contributions before bracket increases
- Evaluate Roth conversion timing
- Review business entity structure (LLC vs S-Corp)
- Document rental and STR activity thoroughly
- Analyze capital gains exposure
- Consider timing for selling property or investments
- Build a 2025–2026 tax strategy with a professional
Indiana 2026 Tax FAQ
Does Indiana conform to QBI?
No — QBI is federal-only.
Will my Indiana taxes increase in 2026?
Rates stay the same, but taxable income may rise due to federal changes.
Are families affected?
Yes — child credits shrink and federal taxable income increases.
Are STR owners affected?
Yes — depreciation and rental activity rules change.
Are retirees affected?
Yes — IRA and pension withdrawals may be taxed more heavily.
Get a 2026 Indiana Tax Strategy
Indiana residents face meaningful tax changes in 2026 due to reduced deductions, higher brackets, and shifting rules for families, business owners, and property owners.
A personalized strategy ensures you’re protected before these changes take effect.