You are probably experienced with real estate taxes if you own a house. However, you might call them personal property taxes since the words have become synonymous. Notably, many people are unaware that the two taxes are different. Therefore, this article provides the details to clarify the confusion between them.
List of Contents
What Are Real Estate Taxes?
Real estate taxes are yearly assessments based on the assessed value of a residence. Every city and state government sets the real estate taxes rate by calculating the fair market value of a residence by the state’s configurable percentage to reach the tax assessment value. The amount of real estate taxes you pay will be determined by the worth of your house and the region of the nation in which you reside. Rural communities like Mississippi and Oklahoma will likely have a far lower real estate tax rate than the popular large cities of Chicago and New York.
How to Calculate Real Estate Taxes?
If your property has a fair market value of $350,000 and the predefined proportion in your city is 65%, your annual real estate tax would be $227,500 ($350,000 x 65%).
Therefore, if your city tax rate is 3%, your annual real estate tax would be $6,825. If your local tax rate were more significant, maybe 8 percent, you would spend $18,200 for a property of comparable value in another city.
What Are Personal Property Taxes?
Personal property taxes apply to objects that are not permanent or moveable. Your vehicle; for instance, is personal property. When you register it each year, you are effectively paying property tax on it. Moreover, it includes boats, aircraft, campers, RVs, ATVs, agricultural equipment, and commercial equipment like furnishings or machines. Since they are all movable, a personal property tax is calculated on their worth. It is similar to how the home’s tax value is calculated.
You must remember that mobile homes are taxed as personal property rather than real estate. Even people live in them just as they would in a home, but they are technically movable. However, if you own the area in which your mobile home is situated, it would be subject to real estate taxes based on its assessed land value.
Notably, the amount of personal property tax you pay also relies on your city, the current personal property tax rate, and the assessed value of each personal item.
The Differences between Real Estate Taxes And Personal Property Taxes
Taxes on real estate are far more costly than taxes on personal property
Real estate taxes are so much more expensive than personal property taxes. You can often register a vehicle between $20,000 and $60,000 yearly for $40 to $75. However, a home’s assessed value and tax rate are significantly greater. Even the state’s lowest expensive real estate taxes would probably be several hundred dollars.
Real estate taxes can be deducted as expenditures on the federal tax return.
Secondly, you may deduct real estate taxes as expenditures on your federal tax return. To deduct, you must itemize Schedule A deductions and reside in the house. Personal property taxes may also be deducted if you itemize, but the deductions for a boat will be much less than those for a house. Moreover, they will be reported in a separate section of your federal return. Not only does your personal property often have less worth than your residence, but it is also taxed at a lower rate than real estate.
Conclusion
In conclusion, despite their similar sound, real estate and personal property taxes are separate forms of tax. The real estate tax is the amount your city charges you depending on the assessed value of your house. On the other hand, cars, business equipment, and household furnishings are taxed as personal property taxes. You should not forget that if the owner of a mobile home does not also own the land on which the house is situated, the mobile home is classified as personal property. However, the real estate tax is charged if the mobile homeowner owns the land.
FAQs
Personal property consists of items such as a person’s furniture, appliances, clothing, sports, and hobby equipment, and electronic devices.
Real property consists of both land and its permanent constructions. Agricultural, commercial, industrial, residential, and utility properties are subject to taxation. Personal property includes equipment, furnishings, and computers.
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- How to Invest in Real Estate Investment Trust (REIT)
- Passive Real Estate Investing: Another Good Way to Build Wealth
- The Best Time to Sell a House
Read more: Taxes
Source: Investopedia