Real Estate Taxes vs. Personal Property taxes

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Real Estate Taxes vs. Personal Property taxes

You’re probably acquainted with real estate taxes if you own a house. Because the phrases have become synonymous, you might even call them property taxes. Many individuals are unaware that the two taxes are not the same.

Though you may be irritated when you get your “property tax” payment or statement, which tells you how much tax you’ll have to pay each year or how much your mortgage company will pay for your real estate taxes. If you have a mortgage, it is normally included in your monthly payment. The term property causes misunderstanding since there is also a personal property tax.

Key takeaways

  • Although the phrases real estate taxes and property taxes are sometimes used interchangeably, they have distinct meanings.
  • Real estate taxes are the fees that your municipality charges you for the assessed value of your house.
  • Personal property taxes are levied on mobile objects such as automobiles, campers, boats, and commercial machinery, equipment, or furnishings.

How Real Estate Taxes Work

Real estate taxes are yearly assessments levied on the assessed value of a residence. Every city and state municipality sets the real estate tax rate by multiplying the fair market value of a residence by the municipality’s preset percentage to arrive at the tax assessment value. Have you ever heard someone complain about the high expense of real estate taxes in their community? This is what they mean, and higher tax rates are common in major areas like New York and Los Angeles.

The amount of real estate taxes you pay will be determined by the worth of your house as well as the region of the nation in which you reside. A rural community in Oklahoma, for example, is likely to have a far lower real estate tax rate than a popular large city on one of the coastlines or in a major metropolis like Dallas or Chicago.

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How Real Estate Taxes Are Determined

If your property has a fair market value of $350,000 and your municipality’s predefined proportion is 65%, the tax assessment value of your home is $227,500, or $350,000 x 65%.

If your local tax rate is 3%, your annual real estate tax would be $6,825.00. If your local tax rate was greater, say 8%, you’d spend $18,200 on a comparable house in another city. Position, position, position.

What Are Personal Property Taxes?

Personal property tax is another term for property tax. Personal property refers to non-permanent or mobile assets in your possession. Your automobile, for example, is personal property, and when you register it each year, you’re effectively paying property tax on it.

Personal property includes things like boats, aircraft, campers, RVs, ATVs, agricultural equipment, and commercial equipment like furnishings or machines. Because they are all mobile, a personal property tax is levied on their worth, similar to how your home’s tax value is calculated.

It’s worth noting that mobile homes are taxed as personal property, not real estate. People live in them exactly as they would in a home, but they are technically mobile. However, if you own the property on which your mobile home is located, it will be subject to real estate taxes based on its assessed land value.

How much you pay in personal property tax on these things is also determined by your city and municipality, as well as the current personal property tax rate and the assessed value of each personal item.

Why Real Estate and Personal Property Are Distinct Taxes

For starters, the tax rate you pay varies. To summarize, real estate taxes are substantially higher than personal property taxes. When you think about it, you can often register an automobile with a value of $20,000-$60,000 for a price of $40-$75 every year. A residence is assessed at a considerably greater value, and the tax rate is significantly higher. Even the lowest real estate taxes in the nation would be several hundred dollars for a moderately priced house.

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Second, if you reside in your house and itemize deductions on Schedule A, you may be allowed to deduct real estate taxes as expenditures on your federal tax return. Personal property taxes may also be deducted if you itemize, but the deductions will be much lower on a boat or RV than on a house and will appear in a separate position on your federal return. This is due not just to the fact that personal property often has less worth than a house, but also to the fact that it is taxed at a lower rate than real estate taxes.

The Bottom Line

Despite their similarity in sound, real estate taxes and personal property taxes relate to separate forms of taxation. Real estate tax is a fee levied by your municipality based on the assessed value of your house. Vehicles, business equipment, and furniture are taxed at a distinct rate, the personal property rate.

One thing that might be taxed as personal property rather than real estate may seem perplexing. If the owner of a mobile home does not own the land on which the house is located, the mobile home is considered personal property. The land is charged for real estate tax if the mobile homeowner owns it.

You are less likely to use the phrases interchangeably now that you understand the distinction between real estate taxes and personality property taxes, and you are more likely to grasp the tax statements and invoices you get for each.

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