Buying or building a home comes with a long list of costs, and taxes are usually the most confusing part. If you’re planning a purchase or new construction in Indiana, here’s the reassuring short answer: Indiana does not impose sales tax on the purchase of a completed home. The full picture is a bit more layered, though, particularly when it comes to new construction. Coverage below includes how Indiana sales tax applies depending on your contract type, how property tax and capital gains work, and how Indiana compares to neighboring Midwest states. This article is for informational purposes only and does not constitute legal or tax advice. Tax rates and rules are subject to change; consult a qualified CPA or real estate attorney and verify current figures at IRS.gov or in.gov before making any financial decisions.
The Short Answer: No, Indiana Does Not Charge Sales Tax on a Home Purchase
Indiana doesn’t impose sales tax on home purchases. Whether you’re buying an existing property or contracting a new custom build, the transaction itself isn’t subject to Indiana sales tax. That’s one of the more buyer-friendly aspects of the state’s tax structure and makes Indiana a relatively clean market for real estate compared to states where extra transactional taxes pile on at closing.
That said, “no sales tax on a home purchase” doesn’t mean “no taxes at all.” There are still significant tax considerations tied to property ownership, construction, and eventual resale. Knowing the full picture helps you budget accurately and avoid surprises.
Why Real Estate Is Exempt from Sales Tax in Indiana
Indiana’s sales tax applies to the retail sale of tangible personal property, meaning physical goods that change hands in a consumer transaction. Real estate simply doesn’t fit that definition under Indiana law.
Real Property vs. Tangible Personal Property: The Legal Distinction
The distinction comes down to two categories: real property and tangible personal property. Under Indiana Code § 6-2.5, sales and use tax applies to tangible personal property, not real property. Tangible personal property includes things like furniture and appliances, or building materials sold directly to a consumer. Real property, which includes land and any structures permanently attached to it, sits outside the scope of Indiana sales tax entirely.
When you purchase a home, you’re acquiring real property. That transaction isn’t subject to Indiana sales tax, and the state doesn’t apply a statewide real estate transfer tax either, which keeps closing costs lower compared to several neighboring states. Indiana also has no local sales taxes layered on top of its 7% state rate, so what you see is what you get across the entire state.
Sales Tax on New Construction Materials: Where It Gets Complicated
The finished home isn’t taxable, but the materials used to build it often are. Indiana sales and use tax applies to building materials purchased for construction, but who pays that tax and how it’s handled depends heavily on the contract structure between builder and buyer.
Time-and-Materials Contracts and Sales Tax
Under a time-and-materials contract, the builder charges separately for labor and materials. In this setup, the contractor is treated as a retail merchant selling materials to the homeowner. The contractor typically purchases materials tax-free using a resale certificate, then collects sales tax from the homeowner on those materials at the contractor’s retail price. The buyer sees the tax reflected in an itemized cost breakdown.
Worth noting: separately stated installation labor is generally not subject to sales tax in Indiana. The taxable portion under a T&M contract is tied to the physical materials, not the hours worked to install them. Budgeting can feel less predictable under this structure since material costs and their associated taxes shift throughout the project.
Lump-Sum Contracts and Sales Tax
A lump-sum contract bundles materials and labor into one fixed price. Here, the contractor is typically treated as the end user of the materials rather than a retail merchant. That means the contractor pays sales tax on materials at the time of purchase, or self-assesses use tax, and absorbs that cost into the total project price. From the buyer’s perspective, sales tax on materials isn’t broken out separately; it’s folded into the agreed-upon number.
This structure is common with custom home builders and tends to make budgeting simpler. You agree on a price, and the builder handles the tax implications on their end. Still, it’s useful to understand what’s happening beneath the surface, particularly when comparing bids from contractors who may use different contract structures.
Other Taxes to Understand When Building or Buying a Home in Indiana
Knowing what taxes you don’t pay is useful, but knowing what you do pay matters just as much. A few key taxes deserve your attention from the start.
Property Taxes for Indiana Homeowners
Property taxes are the primary ongoing tax obligation for Indiana homeowners. Indiana’s effective property tax rate is approximately 0.76% of a home’s assessed value, which runs below the national average. The state also provides a constitutional protection for primary residences: property taxes on a homestead cannot exceed 1% of the property’s gross assessed value.
Starting in tax year 2026, all qualifying homestead properties will receive an automatic 10% credit on their property tax bill, up to a maximum of $300. This is separate from the homestead deduction, which reduces the assessed value subject to tax and should be filed for promptly after closing.
At closing, property taxes in Indiana are prorated between buyer and seller. Because Indiana taxes in arrears, sellers typically credit buyers at closing for the portion of the year the seller occupied the home. Depending on when in the tax cycle the transaction closes, that proration can affect your net proceeds or upfront costs in a meaningful way.
Capital Gains Considerations When Selling
Indiana does not impose a separate capital gains tax. Selling a home isn’t entirely tax-free, though. At the federal level, IRS Section 121 allows most homeowners to exclude up to $250,000 in gain (single filers) or $500,000 (married filing jointly) from a primary residence sale, provided they have owned and used the home as their primary residence for at least two of the last five years before the sale.
For gains that don’t qualify for the exclusion, Indiana includes them in ordinary state income. As of 2026, Indiana’s flat individual income tax rate is 2.95%, and that rate applies to any non-excluded gain rather than a tiered or separate capital gains structure. This is simpler than the bracket-based systems used in other states, though rates are subject to change and should be verified through in.gov or with a qualified tax professional before relying on them for planning purposes.
Why You Should Consult a Tax Professional Before You Build
Custom home construction involves a series of financial decisions with lasting tax implications. How your contract is structured, whether you’re building on land you already own, and your plans for eventual resale all factor into the bigger picture.
This matters especially for Indiana’s sales and use tax rules around construction contracts. The distinction between a time-and-materials and a lump-sum contract isn’t just a paperwork detail; it determines which party bears tax liability for materials and how that affects your overall cost. Misclassifying a contract type or misunderstanding who is responsible for collecting and remitting tax can create compliance issues or unexpected costs. A CPA or real estate attorney familiar with Indiana construction can help you structure your project correctly from the start, well before ground is broken.
A qualified tax professional can also help you plan for the homestead deduction, understand your capital gains position under IRS Section 121, and confirm how the 2026 property tax credit applies to your situation. Getting clear guidance upfront is far less costly than untangling problems at the close of a project.
Start Your Indiana Home Journey with Steiner Homes
Indiana’s tax rules around real estate are, on balance, pretty favorable for buyers and builders. If you’re ready to take the next step, explore Steiner Homes’ custom floor plan options tailored for Northwest Indiana communities. Reach out to their team to start the conversation about building your home.
