Taxes on selling a house in Indiana
Most people who sell a house in Indiana owe no tax on the gain at all. That is the headline, and it is worth stating first because the question usually arrives wrapped in more anxiety than the arithmetic deserves. Between the federal home-sale exclusion and Indiana's absence of a transfer tax, an ordinary owner-occupant selling an ordinary house in Elkhart or Goshen walks away with the proceeds untaxed.
The cases where tax is owed are specific and identifiable: large gains, short ownership, rentals, and inherited or investment property. This guide covers both. The Michigan side works differently enough that it has its own guide — and if you own on both sides of the line, read both.
The federal exclusion does most of the work
Federal law lets you exclude up to $250,000 of gain on the sale of a main home, or $500,000 for a married couple filing jointly. To qualify you must have owned the home and used it as your principal residence for at least two of the five years before the sale, and you generally cannot have used the exclusion on another sale within the prior two years.
Put that against regional prices and the implication is clear. With typical home values from the current market report running $202K in South Bend, $232K in Elkhart and $284K in Goshen, a $250,000 exclusion covers the entire gain on almost any owner-occupied sale in the region. Even in Granger at $425K, the taxable figure is the gain, not the sale price — and the gain is what is left after basis.
Basis: the number that decides everything
Gain is the sale price minus your selling costs minus your adjusted basis. Basis starts at what you paid and goes up with capital improvements — a new roof, an addition, a finished basement, replacement windows, a new furnace. It does not go up with repairs and maintenance. The distinction matters: improvements add to basis and reduce gain; repainting does not.
The practical advice is unglamorous and genuinely valuable: keep the receipts, for as long as you own the house. An owner who put $60,000 into a house over fifteen years and cannot document it has a $60,000 larger gain on paper than the one who can. In a region where people hold houses for decades, this is where real money is lost — the first-year ownership guide makes the same point at the other end of the timeline.
What Indiana itself charges
Two things, and one absence.
No transfer tax
Indiana levies no state or county real estate transfer tax. The state's take at the closing table is effectively nothing — a Sales Disclosure Form filing and recording fees. Compare Michigan, where transfer taxes run about $8.60 per $1,000 of price, and an identical $300,000 sale carries roughly $2,580 that Indiana simply does not charge. The Indiana closing-cost guide covers the rest of the settlement statement.
Income tax on whatever is taxable
Indiana does not have a separate capital-gains rate. Any gain that survives the federal exclusion is taxed as ordinary income at Indiana's flat individual rate — a little under 3%, and scheduled to keep stepping down through 2027 — plus your county local income tax, which varies by county and is levied on top. Seven counties make up this region and their local rates are not identical, so the county your parcel sits in changes the answer. Check the current state and county rates for the year of your sale rather than relying on a figure from a prior year.
When you will actually owe something
- You sold within two years of buying. Without two years of ownership and use, the full exclusion is unavailable — though partial exclusions exist for job relocation, health, and certain unforeseen circumstances.
- It was a rental. Depreciation you took (or were entitled to take) is recaptured and taxed, and it is not covered by the home-sale exclusion. Selling with tenants covers the transactional side.
- It was a second home or a lake property. The exclusion applies to a principal residence only. A lake house held for weekends does not qualify.
- The gain genuinely exceeds the exclusion. Rare at regional price levels, but real for long-held New Buffalo-adjacent property and for Indiana owners who bought decades ago.
Inherited property is treated generously
An inherited house takes a stepped-up basis: its value at the date of death rather than what the deceased paid. Sell it near that value and the taxable gain is small or nothing, regardless of how much it appreciated during their lifetime. This is the most commonly misunderstood rule in the whole area, and it usually works in the seller's favor. Selling an inherited home covers the process; the basis step-up is the reason those sales are rarely the tax problem people fear.
Selling costs reduce the gain
Commission, title charges, settlement fees, transfer-related costs and certain closing expenses come off the amount realized before gain is calculated. Worth noting for a seller weighing going direct: saved commission is money you keep outright, whereas paid commission only reduces a gain that, for most sellers here, was not going to be taxed anyway. The deduction is not a consolation — keeping the cash is strictly better.
Get advice on the cases that are actually complicated
Straightforward owner-occupied sales in this region rarely need a tax professional. Rentals, partial-year conversions between rental and residence, inherited property sold well after death, sales during a divorce, and any exchange into replacement investment property all do. Selling during a divorce has its own timing traps. The cost of an hour with a CPA is trivial against the size of the mistakes available in those situations.
Frequently asked questions
Do you pay taxes when you sell a house in Indiana?
Usually not. Federal law lets you exclude up to $250,000 of gain on the sale of a main home, or $500,000 for a married couple filing jointly, provided you owned and lived in it for at least two of the five years before the sale. At regional price levels that exclusion covers the entire gain on almost any owner-occupied sale, and Indiana adds no transfer tax on top.
Does Indiana have a transfer tax on home sales?
No. Indiana charges no state or county real estate transfer tax. A Sales Disclosure Form must be filed with the county at transfer and recording fees apply, but there is no percentage levy on the sale price. The contrast with Michigan is substantial: an identical $300,000 sale across the state line carries roughly $2,580 in combined state and county transfer tax.
How much tax do you pay on capital gains from a home sale in Indiana?
Any gain that survives the federal exclusion is taxed federally at the applicable capital-gains rate, and by Indiana as ordinary income — the state has no separate capital-gains rate. Indiana's flat individual rate sits a little under 3% and is scheduled to continue stepping down through 2027, and your county's local income tax is levied on top of it, so the county the property sits in affects the total.
Do you pay capital gains tax on an inherited house in Indiana?
Often very little. An inherited property receives a stepped-up basis equal to its value at the date of death rather than what the deceased originally paid, so if you sell near that value the taxable gain is small or nonexistent — however much the house appreciated during their lifetime. Indiana also has no inheritance tax on the transfer itself.
What home improvements reduce the tax when you sell?
Capital improvements add to your basis and therefore reduce your gain: additions, a new roof, replacement windows, a finished basement, a new furnace or central air. Ordinary repairs and maintenance such as repainting do not. Keep receipts for the entire period you own the home — an undocumented $60,000 of improvements produces a $60,000 larger gain on paper.