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Real Estate Taxes and Property Taxes: Understanding The Difference

Real Estate Taxes and Property Taxes: Understanding The Difference


People that own a car or a truck will not be strangers to property taxes. These are taxes levied by the local government. The government uses the money majorly for projects and other services that benefit everyone around like road construction, street light, emergency services, and schools.  

Property taxes are in two forms: it can be real property and personal property. What determines the type that accrues to you is whether the property is fixed (cannot be moved) or not fixed (can be moved). 

What are Real Property Taxes?

Real property tax or simply property taxes have to do with fixed properties. It includes land and any structure that is attached permanently to it. As a result, houses, warehouses, and other structures or improvements are perfect examples.

The local tax assessor is in charge of collecting real property taxes. You either pay it every year, or it can be added to your monthly mortgage payment. In calculating this tax, you will multiply the assessed value of your home by the local tax rate. For a house valued at $400,000, with a tax rate of 1.2%, the house owner will have to pay $4800 in taxes.

As long as you own a property, you must pay real property taxes. You must pay the tax for as long as you are the owner of the property. This means that even after paying off your mortgage, you must pay the tax. It is worth noting that real estate does appreciate. As a result, the local tax rate also rises. This means that in time, the tax will increase.

One way to make sure you are not being overcharged on your real estate property tax is to ensure that your house is valued correctly. This means that you should carefully review your house assessment. Should your home be over-valued, you will be paying excess taxes. If this is your case, try and file an appeal at the local tax office.

What are Personal Property Taxes?

On the other hand, personal property taxes are those levied on unfixed properties; in other words, properties that can be moved. Thus cars, mobile homes, airplanes, ships, vessels, and others in this category are movable property. These taxes are typically paid every year when you renew your registration. For example, when renewing the license of your boat. 

The good news is that not all states in the U.S. do charge a property tax. As at the time of compiling this article, all U.S. states impose a property tax. The tax is usually based on the current and estimated value of the property. This tax, however, reduces over time as items like cars do depreciate in time. 

Commercial Property Taxes

For owners of commercial real estate, there will be payment of property taxes. This tax is also based on the estimated value of the item. The tax rate for commercial properties is usually higher than the one for commercial properties. 

There are regions as well that levies business property tax. In other words, every item that helps bring in income like furniture, fixtures, and other business accessories is taxed. For people in this category, they will have to fill a form called the Business Property Statement that reveals the property you use for business. There will be an assessor that will estimate the value of these properties. Based on this assessment, the tax office will send you a tax bill. 

It is essential to have a detailed record as business property tax can add up. Also, all items that have been disposed of, broken, spoiled, un-repairable, and taken to other locations should be removed from your list. This way, you can avoid paying taxes on items you do not use.

Can I Deduct My Property Taxes?

For people that pay personal and real estate property taxes, you can have the total amount you paid for an itemized deduction on your income tax return. This is part of the SALT (-- the State and Local Taxes) deduction. This federal tax deduction is $10,000 per year.

There is a provision to deduct the state and local taxes that you paid on the personal property on your business, according to the IRS.

Taxes could be complicated, with many things to understand. As a result, be sure to work with a qualified tax expert. This way, you can get the best tax information and treatment.



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