Indiana follows federal 1031 exchange rules with a 3.23% state income tax rate and no special withholding requirements for non-residents.
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.
Important regulations and tax implications for your exchange
3.23% (flat rate)
Yes
None
$0.50 per $500 of value
Varies by county (0.85% average)
• Federal Form 8824 • Indiana Schedule 1 (for reporting adjustments) • Complete closing statements for both properties • Qualified Intermediary agreement
None
Informational step-by-step guide for your 1031 exchange
You must identify potential replacement properties within 45 days of selling your relinquished property. In Indiana, consider regional market differences, property tax variations, and local economic factors when identifying properties.
Work with a qualified intermediary to handle the exchange funds and documentation. Indiana has several experienced QIs who understand the local market and can help navigate the state's unique considerations.
Complete the purchase of your replacement property within 180 days of selling your relinquished property. Be aware of Indiana's real estate transfer tax, which will apply to the transaction.
Report your 1031 exchange on your federal tax return using Form 8824 and on your Indiana state tax return. Indiana follows federal guidelines for 1031 exchanges, so the reporting is relatively straightforward.
Indiana has property tax caps in place, with rates varying by county and municipality. The state average is approximately 0.85%, which is below the national average. When selecting replacement properties, research the local property tax rates and recent reassessment history, as these can impact your investment returns.
Indiana real estate markets vary significantly between regions. Indianapolis offers urban and suburban options with strong rental demand, while secondary markets like Fort Wayne, Evansville, and South Bend offer more affordable entry points with different economic drivers. Research regional economic trends, employment data, and population growth when selecting replacement properties.
Indiana has 156 designated Opportunity Zones across the state, which can provide additional tax benefits when combined with a 1031 exchange. Consider properties in these zones for potential additional tax advantages beyond the 1031 exchange benefits.
Recent changes and upcoming regulations affecting 1031 exchanges
While there were no significant changes to Section 1031 of the Tax Code in 2024, 2025 may bring new proposals that could potentially affect 1031 Exchanges. Investors should stay informed about potential legislative changes.
In 2024, there were no significant changes to Section 1031 of the Tax Code affecting Indiana investors. The state continues to follow federal guidelines for 1031 exchanges.
The Indiana General Assembly temporarily lowered the 1% homestead tax cap to 0.95% for taxes payable in 2024, and 0.975% for 2025, providing some relief for property owners.
Plan and track your critical exchange deadlines
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Detailed analysis of key real estate markets in your area
Different regions within this state offer unique opportunities and challenges for 1031 exchanges. Here's an overview of key regional markets and their characteristics.
Indianapolis offers a diverse urban and suburban market with strong job growth, cultural amenities, and economic diversity.
Fort Wayne offers an affordable market with strong recent growth, manufacturing resurgence, and downtown revitalization.
Bloomington offers a stable university market with strong rental demand, cultural amenities, and healthcare growth.
South Bend/Mishawaka offers a revitalizing market with university influence, manufacturing diversification, and healthcare growth.
Investment property insights for Indiana
Multi-family properties in Indiana offer strong returns with robust tenant demand, particularly in Indianapolis, Fort Wayne, and university markets.
Retail properties in Indiana present mixed opportunities, with strong performance in certain submarkets and challenges in others.
Office properties in Indiana face challenges from remote work trends, though certain submarkets and property types show resilience.
Industrial properties in Indiana offer strong returns with robust demand, particularly in logistics corridors and near transportation hubs.
Local tax benefits and programs for property investors
Beyond the tax deferral benefits of a 1031 exchange, this state offers additional tax incentives that can further enhance your investment returns. Review these programs to see if your replacement property might qualify. Please contact a tax professional prior to electing any tax incentive to determine if there are any additional tax concerns or benefits available to you.
Indiana has 156 designated Opportunity Zones across the state, which can provide additional tax benefits when combined with a 1031 exchange.
Deferral of capital gains, reduction of deferred gain, and potential elimination of tax on appreciation
Benefits vary based on holding period, with maximum benefits at 10+ years
Invest through a Qualified Opportunity Fund within 180 days of realizing capital gains
Tax credits for the rehabilitation of vacant industrial facilities, which can benefit investors repurposing older industrial properties.
Tax credit of up to 25% of qualified investment
Credits may be carried forward for up to 9 years
Submit application to Indiana Economic Development Corporation, receive approval, and meet ongoing reporting requirements
Tax credits for redevelopment of brownfield sites and vacant properties, which can benefit investors acquiring and rehabilitating distressed properties.
Tax credit of up to 25% of qualified investment
Credits may be carried forward for up to 9 years
Submit application to Indiana Economic Development Corporation, receive approval, and meet ongoing reporting requirements
Real 1031 exchange examples from Indiana
Current market conditions and future forecasts
Strong seller's market, named 2nd most competitive housing market for 2025.
Emerging hotspot with growth rates up to 2.2% expected.
Stable market with strong rental demand near Indiana University.
Steady growth, particularly near Notre Dame.
Long-term appreciation analysis in Indiana
Understanding historical property appreciation patterns can help you identify areas with strong long-term growth potential for your 1031 exchange replacement property.
6.2%
45.8%
92.4%
Strong growth expected, named 2nd most competitive housing market for 2025
5.8%
39.5%
78.2%
Growth rates of up to 2.2% expected, emerging as a hotspot
4.5%
32.7%
68.9%
Moderate growth expected, with stable demand
5.2%
36.8%
74.5%
Steady growth expected, particularly near Notre Dame
Current rental trends and opportunities in Indiana
Understanding the rental market is crucial when selecting investment properties for your 1031 exchange. This analysis provides insights into current rental conditions across the state.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,500 - $2,200 (1BR) | 5.8% | up | 5.0% - 6.0% |
| Mid-Range Apartments | $1,000 - $1,400 (1BR) | 4.5% | up | 6.0% - 7.0% |
| Single Family Homes | $1,500 - $2,500 (3BR) | 3.8% | up | 5.5% - 6.5% |
Indianapolis's rental market includes a diverse mix of young professionals, students, and families. Approximately 40% of renters are under 35 years old. The market has a significant component of corporate relocations and healthcare/tech professionals.
Indianapolis has balanced landlord-tenant regulations that provide reasonable protections for both parties. The city follows state law regarding security deposits, lease terms, and eviction procedures, creating a straightforward operating environment for landlords.
Indianapolis's rental market is expected to remain strong with continued growth, particularly in neighborhoods experiencing revitalization and areas near employment centers. The combination of job opportunities, cultural amenities, and transportation infrastructure supports rental demand.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,400 - $2,000 (1BR) | 4.8% | up | 5.0% - 6.0% |
| Mid-Range Apartments | $1,000 - $1,300 (1BR) | 3.5% | up | 6.0% - 7.0% |
| Single Family Homes | $1,800 - $3,000 (3BR) | 2.8% | up | 4.5% - 5.5% |
Northern suburban rental markets attract a mix of young professionals, families, and empty nesters. School district quality is a primary driver for family rentals. Corporate presence in suburban office corridors drives professional tenant demand.
Northern suburbs follow state landlord-tenant law without additional local regulations. This creates a landlord-friendly environment with predictable rules and procedures.
Northern suburban rental markets are projected to see continued growth, particularly in communities with strong school districts and transportation access to Indianapolis. The trend toward remote work has increased demand for larger suburban rental units with home office space.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Student Apartments | $900 - $1,500 (per bedroom) | 4.2% | stable | 6.0% - 7.0% |
| Mid-Range Apartments | $800 - $1,200 (1BR) | 3.8% | stable | 6.5% - 7.5% |
| Single Family Homes | $1,400 - $2,200 (3BR) | 3.5% | stable | 5.5% - 6.5% |
University markets are dominated by student renters, with a significant component of faculty and staff. Approximately 70% of renters in these markets are affiliated with the universities. Seasonal demand patterns align with academic calendars.
University towns follow state landlord-tenant law, with some additional local ordinances related to noise, occupancy limits, and parking. Landlords should be familiar with these local regulations to ensure compliance.
University rental markets show stable demand with predictable patterns tied to enrollment. Premium properties near campus command higher rents, while properties farther from campus offer better cap rates but may experience more seasonal vacancy.
Key mistakes to avoid in your 1031 exchange
Indiana real estate markets vary significantly between regions, with different economic drivers, growth patterns, and investment characteristics.
Conduct thorough research on the specific regional market where you're considering purchasing replacement property. Understand the local economic drivers, employment trends, and growth patterns. Consider consulting with a real estate professional who specializes in that specific market.
Indiana has property tax caps in place, but the rates and assessment processes can vary significantly by county and municipality.
Research property tax rates and assessment practices in specific counties and municipalities before identifying replacement properties. Understand the different tax caps for different types of property (1% for owner-occupied residential, 2% for other residential and agricultural, and 3% for commercial).
While Indiana's state income tax rate is low at 3.23%, some localities impose additional income taxes that can range from 0.5% to 2.9%.
Research local income tax rates in the specific municipality where you're considering purchasing replacement property. Factor these additional taxes into your investment calculations.
Indiana's real estate market has significant seasonal variations, with much more activity in spring and summer compared to winter.
Plan your 1031 exchange timing carefully, considering the seasonal nature of Indiana's real estate market. If possible, avoid having your identification period fall during the slower winter months when fewer properties may be available.
Common questions about Indiana 1031 exchanges
Yes, Indiana fully conforms to federal 1031 exchange rules. If the Section 1031 exchange is valid at the federal level, it is valid at the state level, and Indiana never gets to tax the gain deferred under federal law.
Indiana imposes a flat state income tax rate of 3.23% on all income, including capital gains, which can be deferred through a 1031 exchange.
No, Indiana does not impose withholding requirements on non-residents selling real property, making the process simpler for out-of-state investors engaging in 1031 exchanges.
Indiana has property tax caps in place, with rates varying by county and municipality. The state average is approximately 0.85%, which is below the national average. Different property types have different caps: 1% for owner-occupied residential, 2% for other residential and agricultural, and 3% for commercial.