Short-Term Rental Taxes in Indiana: Complete Guide for STR Investors

Indiana offers a relatively investor-friendly tax environment for STR operators: a low flat income tax rate, full conformity with federal bonus depreciation, and a range of STR markets from the artsy hills of Brown County to the Lake Michigan shoreline at Indiana Dunes. The main complexity comes from the layered county income tax and the county-by-county innkeeper's tax — both of which require local knowledge to navigate.

Indiana State and County Income Tax

Indiana's 3.23% flat income tax is one of the lower state income tax rates in the Midwest. However, Indiana also levies a county income tax that applies to Indiana residents — the county where you live (not where your STR is located). County tax rates range from 0.5% (several counties) to 3.38% (Pulaski County). Most populated Indiana counties fall in the 1–2% range, giving most Indiana STR investors a combined state + county rate of approximately 4.5–5.5%. Out-of-state investors who own an Indiana STR but don't live in Indiana pay only the 3.23% state rate with no county add-on.

Indiana Innkeeper's Tax by County

Federal Bonus Depreciation in Indiana: Full Conformity

Indiana fully conforms to federal bonus depreciation. When you commission a cost segregation study and take 100% bonus depreciation on 5-year and 15-year assets, Indiana allows the same deduction on your Indiana IT-40 return. There's no addback, no limitation, and no separate calculation — what's deductible federally is deductible in Indiana. This is a significant advantage over neighboring Illinois and Wisconsin, both of which decouple from federal bonus depreciation.

Top Indiana STR Markets

• Brown County / Nashville, IN: Indiana's premier nature tourism destination; 200,000+ acres of state forest; famous for fall foliage (October is peak); art galleries, boutique shops, and cabin rentals; the quintessential Indiana STR market
• Indiana Dunes (Porter/LaPorte Counties): Recently elevated to National Park status, driving significant visitor growth; Lake Michigan shoreline; proximity to Chicago (60 miles) gives strong weekend demand
• Bloomington / Monroe Lake: Indiana University college town; strong demand for graduation weekends, football games, and year-round tourism; Lake Monroe waterfront properties
• Indianapolis: Urban market driven by sporting events (Indy 500, Brickyard 400, Big Ten events), conventions, and tourism; highly regulated in some areas; 10% innkeeper's tax
• South Bend: Notre Dame football drives extraordinary demand on home game weekends; university-adjacent STRs can generate exceptional short-burst revenue

Cost Segregation in Indiana

Indiana STR properties — particularly the cabin and resort-style properties in Brown County and the lake homes on Indiana Dunes — have solid cost segregation profiles. Brown County cabins with decks, hot tubs, outdoor fire pits, and rustic furnishings typically generate 20–30% of purchase price in short-life assets. A $350,000 Brown County cabin might yield $70,000–$105,000 in bonus-eligible deductions. Indiana's full bonus depreciation conformity means the federal and state deductions are perfectly aligned — a $90,000 deduction saves approximately $33,300 federally (at 37%) plus $2,907 in Indiana state tax (at 3.23%), for a combined $36,207 first-year benefit.