Property Taxes vs Real Estate Taxes: What’s the Difference?

If you’re new to real estate, you may be a little confused by all the taxes that are assessed. To many people, the words ‘property taxes’ and ‘real estate taxes’ sound like the same thing, but there are some significant differences. Let’s take a look at them.

Property taxes are taxes based on the assessed value of the property. They are assessed on privately owned properties and local governments raise the funds. Property taxes are what we often hear about funding schools and paying for road repairs.

Property taxes have two subcategories. Certainly, there are real estate taxes that are real estate taxes, but there are also personal property taxes. Think of real estate as something that cannot be moved. These are things like the house, an outside garage, a storage building, or a barn.

Personal property is defined as things that can be moved, such as furniture. These taxes are sometimes called excise taxes. Your car is also personal property. Believe it or not, but that license fee you pay for your car is a type of personal property tax. If you have a business that repairs items or sells merchandise, that inventory is personal property. In many cases, you’re exempt from tax on the first $50,000 or $100,000 of inventory, depending on your state.

If you own an RV, this is counted as personal property because it can be moved, even if you live in one full time. If it’s located on land you own, you may have to pay property taxes on that land, but not in combination with the RV.

So what is the assessed value on which these taxes are based? Every local government has a department that looks at what a property is really worth. They look at the structure and value of the land itself. Sometimes they calculate these values ​​separately and sometimes they look at them together. The appraised rate is a smaller percentage of the appraised value. For many areas, the assessment rate is 70% to 80%, which then lowers the value of the home and therefore the amount against which the tax rate is calculated.

It should be noted that HOA or condominium association fees are not the same as real estate or property taxes. Those fees go directly to the association to cover the costs of repair and maintenance of common areas.

Personal property taxes are assessed as a percentage of the value of the item. Each state and county will have their own regulations on how they calculate personal property taxes. Additionally, each state, as well as the federal government, allows a tax deduction on personal income tax forms for property taxes that have been paid in a given year.

There are also exemptions that certain homeowners may qualify for that help reduce the tax burden. These exemptions are often for the military wounded, disabled, and elderly.

Hopefully this has helped clarify the differences between property taxes and real estate taxes. Although they sometimes overlap, they are also quite different. It just depends on what the item is that is subject to tax.