What is the Difference Between Real Estate Tax and Property Tax?

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The terms “real estate taxes” and “property taxes,” are often used to mean the same thing. The problem lies specifically with the term “property taxes.” Property taxes can refer to both “personal property taxes” and “real estate taxes.” There is a big difference, though, between what the government considers real and personal property.

Real Estate Taxes

Real estate taxes are assessed on most privately owned properties in the United States including homes sites. Some communities (remote areas of Alaska, for instance) do not impose taxes on real property. The revenue generated from real estate taxes are used to help pay for local services like road maintenance, snow removal, public schools and the operation of local government offices. Real estate taxes are calculated as a percentage of a property’s tax assessed value. Sometimes local levies that pass by majority vote are attached to real estate taxes.

Tax-Assessed Value

Properties are appraised by professional staff property appraisers in order to determine their fair market value (FMV). FMV is simply an estimate of what a property would sell for in an open market. The local government sets an assessment rate, which is a percentage of FMV. Then it calculates an assessed value. For instance, if a property is appraised at $150,000 and the local assessment rate is 70 percent, then the property’s tax-assessed value would be $105,000 (70 percent of $150,000.) The homeowner’s real estate tax is a percentage of the property’s assessed value. So if the local tax rate is 2 percent of tax-assessed value, the annual real estate tax on the above example would be $2,100 (2 percent of $105,000).

Personal Property

The IRS considers a house and the lots and land that it sits on as “non-movable” property. Barns, garages and other outbuildings also are non-movable. Personal property, however, includes items that are movable, like vehicles, livestock and furniture. The general determination of whether something is considered unmovable is if the item would be damaged if it were moved. Walls in a home would be damaged if they were moved, so the home is not considered personal property. But most objects inside the home (like furniture), would not be damaged if moved, so they are considered personal property.

Personal Property Tax

Every state imposes an annual registration tax on your vehicle through the state’s motor vehicle bureau. This is a simple type of personal property tax. In addition, some states impose a personal property tax on other possessions, particularly if the items are used for business purposes, that is, to generate revenue. For instance, you may own a seasonal bicycle rental business, and have an inventory of 20 bicycles. These items might be assessed a personal property tax, since they are used to generate income. Most states, though, usually exempt items below a certain aggregate amount; for instance, you may have $70,000 worth of personal property, but the first $50,000 worth of property is exempt. Therefore you will only pay tax on the remaining $20,000 worth of property. Personal property tax is usually calculated as a percentage of the item’s value. Check with your state’s department of taxation for local personal property tax regulations.

Mobile Homes and Exemptions

If you live in a mobile home as your primary residence, you might assume that you pay annual real estate tax on it. However, because mobile homes are movable (that is, they are not affixed to the ground like a traditional house), they are assessed a personal property tax, but not a real estate tax. Most municipalities that impose real estate and personal property taxes also offer various exemptions—for instance, for widows, disabled persons and families of combat military personnel.

To learn more about real estate and property taxes and how they affect your real estate investments, visit 9 Core Realty on the web!


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