Are Real Estate Taxes The Same As Property Taxes?
These similar phrases can be used interchangeably in most cases, but there are slight differences that can be confusing for taxpayers.
Even though the terms “real estate taxes” and “property taxes” are often used interchangeably, there are certain differences in these types of taxes that are worth learning, so you can understand how much tax you owe on your property and why. There are more types of property that individuals can own outside of a house or land and different taxation policies depending on the type of property.
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Key Takeaways:
- Real estate taxes and personal property taxes are different in that real estate taxes refer to nonmoveable property such as land or buildings, whereas property taxes refer to moveable property such as vehicles and machinery.
- Real estate taxes are determined based on the value of the house and its location, which is why homes in cities with high tax rates, such as LA and NYC, are much more expensive.
- Personal property taxes are calculated based on the assessed value of the property, the personal property tax rate, and the taxpayer’s location.
- The tax rates for real estate taxes are significantly higher than that for personal property taxes, so consequently, the itemized deductions for real estate taxes can be much more impactful in reducing a taxpayer’s tax liability.
What Is Real Estate Tax?
Real estate tax refers to annual taxes on non-movable property, such as land, buildings, or houses permanently attached to the ground.
Anyone who owns a home, building, or land pays property tax, whether their form of payment is direct to their local tax assessor or indirect with their monthly mortgage payment.
How Are Real Estate Taxes Calculated?
The amount of real estate taxes that taxpayers will owe each year is dependent on the value of their house and the area they live in. Here is how to calculate real estate taxes for a property:
- Identify the fair market value of the house.
- Identify the predetermined percentage in the local municipality.
- The tax assessment for real estate is determined by multiplying the fair market value of the house by the predetermined percentage in the municipality.
- Identify the local tax rate.
- Multiply the tax assessment value with the local tax rate for the annual real estate tax for the year.
Because the tax assessment value of a property is multiplied by the tax rate of a certain area, it is clear to see that the location of a property can significantly impact an individual’s real estate tax bill.
People who live out in the country in a rural area will usually experience lower tax rates for their property value when compared to property owners in popular urban cities like Los Angeles or New York.
What Is Property Tax?
Property tax, sometimes referred to as personal property tax, refers to taxes on multiple types of tangible personal property, and this classification is not limited to homes or land. Instead, personal property tax is imposed particularly on assets that are movable or non-permanent.
There are different types of personal possessions for which taxpayers will owe property taxes, such as:
- Vehicles
- Cars
- Trucks
- RVs
- Mobile homes
- Campervans
- ATVs
- Motorcycles
- Farm equipment
- Machinery
- Furniture
Even though some of these personal property types involve a place where people live as they would in a house, like RVs and mobile homes, because they are moveable, they fall under the personal property tax classification instead of the real estate tax classification. However, taxpayers who also own the land an RV is on will also owe real estate taxes.
How Are Personal Property Taxes Calculated?
The amount that an individual is required to pay for their personal property taxes depends on various factors, such as their municipality, city, current personal property tax rate, and the assessed value of their personal items.
Difference Between Real Estate And Personal Property Taxes
The main differences between real estate and personal property taxes are the tax rates and the impact of tax deductions.
Tax Rates
One of the main differences between the taxes paid for immovable real estate and moveable property is that the real estate tax rate is much higher than that for personal property taxes.
Tax Deductions
Another difference between these similar tax types is that real estate taxes can sometimes be deducted from an individual’s federal income tax return if the home is their primary residence and if the deductions are itemized on Schedule A.
While personal property taxes can also reduce someone’s tax liability through itemized deductions, the impact of this tax break is less significant because personal property is usually of lower value than real estate with a consequently lower tax rate.
Even though understanding all of the different types of taxes can be confusing, the tax experts at Ideal Tax would be happy to answer any of your tax questions. If you need tax advice about your property taxes or need help with other tax matters, set up your free consultation today.
Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.
