What is the Difference Between Property and Real Estate Taxes?
With the holidays fast approaching, it won’t be long before tax season is in full swing. But, for first-time homeowners,’ this tax season will likely come with a number of questions. So, here is a look at the difference between various tax-related terms that often need to clarify and understood before tax season.
Real Estate Taxes
Real estate taxes are assessed on most of the privately owned properties in the country. Now, it should be noted that there are some communities, including some remote areas of Alaska, that do not impose taxes on real property. The revenue that is generated from real estate taxes is used to help pay for local services like public schools, road maintenance, and snow removal. These taxes are calculated as a percentage of a property’s tax assessed value.
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. Additionally, 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 example, you may own a seasonal bicycle rental business, and have an inventory of 50 bikes. These items might be assessed a personal property tax since they are used to generate income. In the majority of states, though, usually exempt items below a certain aggregate amount; for instance, you may have $80,000 worth of personal property, but the first $50,000 worth of property is exempt. Therefore you will only pay tax on the remaining $30,000 worth of property. Personal property tax is usually calculated as a percentage of the item’s value. If you have any questions it is a good idea to take some time and check with your state’s department of taxation for local personal property tax regulations.
Personal Property
The IRS considers a building and the land on which it is situated on as “non-movable” property. These include, barns, houses, garages and other outbuildings also are non-movable. Personal property, however, includes items that are movable. Things 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.
Are There Any Exceptions?
If you live in a mobile home as your primary residence, you might be surprised to learn that you do not have to pay the traditional real estate tax on it. Due to the fact that mobile homes are movable (that is, they are not affixed to the ground like a traditional house), they have assessed a personal property tax, not a real estate tax. Most communities and 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.