Real Estate Tax vs. Property Tax: What’s the Difference?

Real Estate Tax vs. Property Tax: What’s the Difference?

Do you own a house or car? Then you’re probably familiar with property taxes. These taxes are levied by local governments and use the money to pay for projects and services for the community’s benefit such as schools, libraries, road construction, and emergency services.

Property taxes come in two types - real property and personal property. The type you need to pay is based on whether the property in question can be moved.

Real Property Taxes

Real property taxes also known as real estate taxes or just “property taxes” apply to property that is immovable, including land any structures that are attached to it permanently. Houses, garages, and other improvements are just some of its examples.

Each year, you pay real property taxes directly to your local assessor, they can get rolled into your mortgage payment per month. Multiply the assessed value of your home by the local tax rate in order to get the tax. For example, the value of your home is assessed at $200,000 and the rate of tax is 1.5%, you’ll owe an amount of $3,000.

Real property taxes must be paid by all property owners. As long as you own the home, you continue to pay real property taxes even after you’ve paid off the mortgage. Furthermore, real estate tends to appreciate and tax rates locally tend to increase. This only means there is a higher chance for your tax bill to increase over time.

It’s best if you take a close look at your assessment. If you believe your home’s value is too high and you’re making payments that are overpaid, an appeal with your local tax office can be filed.

Personal Property Taxes

Personal property taxes are for movable properties such as cars, mobile homes, RV,s boats, and snowmobiles. These taxes are typically paid each year when your registration is being renewed, such as when your car needs a new sticker.

Personal property taxes are charged by only about half of the states in the U.S. Once you confirmed that your state does, the current value of the property is where it will be based. 

The amount you owe typically drops over time since the value of items like cars and boats tend to lose as they age.

Commercial Property Taxes

You will also pay property taxes if you are a commercial real estate owner. You pay real property taxes on the assessed value of any land and improvements similar to those who own homes. The assessment of the property is usually as its “highest and best use.” The rate for commercial properties is oftentimes higher than residential rates.

Business personal property is also taxed by many jurisdictions. Business equipment, fixtures, furniture, and other items that contribute to the production of income is included in this. If the place where you live imposes these taxes, filing a form is required from you each year to report your property such as a Business Property Statement. The collective value of your personal property is also determined by an assessor and a bill is then created by the tax office and collects the tax.

It’s for your best interest if you keep comprehensive records since business personal property taxes can add up. Any assets from your list that have been disposed of, moved to another location, or that are broken and cannot be repaired, must be removed. Otherwise, taxes on items you no longer use must be paid by you. Keeping track of business personal property is complicated that’s why a lot of companies outsource this job to experts of property taxes. 

Deducting Property Taxes

You can count the amount you paid towards your itemized deductions on your income tax return if you pay real and/or personal property taxes. The SALT deduction or the State and Local Taxes deduction includes this. A limit of $10,000 per year has been set to that federal tax deduction as part of the Tax Cuts and Jobs Act.

The IRS says, at the commercial level, you can deduct any state and local taxes you paid on personal property payments used in your trade or business.

Taxes are complex and there’s always a change of rules. Working with a qualified tax advisor is always recommended if you want to ensure that you receive the most favorable tax treatment possible.

Contact Member