A provision in HB1406 creates a state income tax credit for qualifying redevelopment projects in small Indiana towns—and most retail owners don't know it exists.
Most Indiana retail owners haven't heard of the Small Town Opportunity Initiative tucked into HB1406. That's a problem, because it could offset a significant portion of a downtown redevelopment or historic preservation project—with no repayment required.
HB1406, effective July 1, 2026, creates a state income tax credit for taxpayers who invest in qualified real property projects in small towns. The credit equals either 20% (for-profit entities) or 30% (nonprofit organizations) of your qualified expenditures on historic preservation, redevelopment, or rehabilitation work.
The credit applies only to projects in downtown areas of cities or towns under 30,000 population, or counties under 75,000 population. There's a minimum project budget threshold of $15 million.
Because it's a tax credit—not a loan or grant—there's no repayment obligation. You reduce your state income tax liability dollar-for-dollar by the credit amount.
This provision matters most to retail owners and developers considering substantial rehab or preservation work in Indiana's smaller communities. If you own or operate a retail business in a downtown district of a qualifying town, or if you're planning a mixed-use project that includes retail space, this credit could materially improve project economics.
Nonprofits get a higher credit rate (30% versus 20%), which can make nonprofit-led redevelopment projects more feasible. For-profit retailers and developers still benefit significantly at the 20% rate, especially on larger projects where the dollar value of the credit is substantial.
The provision is codified in Section 15, IC 6-3.1-34-24, on pages 22–24 of HB1406. The effective date is July 1, 2026, meaning projects must qualify under the program rules as written in the statute starting that date.
The $15 million minimum project budget is a meaningful threshold. Small single-tenant rehabs won't qualify, but larger downtown revitalization efforts—whether a multi-unit mixed-use building, a historic hotel conversion, or a significant retail district upgrade—could easily meet it.
If you're planning a redevelopment project in a qualifying Indiana town, review the statute language carefully or consult a tax advisor familiar with state credits. Timing matters: projects must be structured to align with the July 1, 2026 effective date and meet all statutory requirements to claim the credit.
Documentation of qualified expenditures will be critical. Work with your accountant and project team from the start to ensure costs are properly tracked and categorized.
The Indiana Retail Federation and your local chamber of commerce may have additional guidance as implementation details emerge closer to the effective date.
Source: HB1406, Section 15, IC 6-3.1-34-24, pages 22–24.