If you own a home, you are likely familiar with the term "real estate taxes." In some cases, you might even refer to them as property taxes. However, these terms are not interchangeable and actually refer to two different types of tax.
In this article, we will explore the definitions of real estate taxes and property taxes and explain the key differences between both.
What Are Real Estate Taxes?
Real estate taxes are levies imposed by local governments on the assessed value of real property, such as land, buildings, and improvements. These taxes, paid annually, are determined by multiplying the fair market value of a home by the predetermined percentage in a certain municipality, per Investopedia.
For example, your property has a fair market value of $400,000 and the predetermined percentage in your municipality is 65%. That would make the tax assessment value of your home $260,000. If your local tax rate is 3%, your annual real estate tax payment will be $7,800.
Real estate taxes serve as a significant revenue source for municipalities and are utilized to fund public services like schools, infrastructure maintenance, and emergency services.
What Are Personal Property Taxes?
Personal property taxes, on the other hand, pertain to levies on movable assets that individuals or businesses own. This can include vehicles, machinery, equipment, and other tangible assets.
Unlike real estate taxes, personal property taxes are not tied to immovable structures but rather to items that can be transported. Similar to real estate tax, your personal property tax is assessed based on the value of the asset.
Key Differences
Taxable Assets:
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Real Estate Taxes: Imposed on immovable property, such as land, buildings, and improvements.
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Personal Property Taxes: Levied on movable assets like vehicles, machinery, and equipment.
Mobility of Assets:
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Real Estate Taxes: Tied to the physical location of the property.
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Personal Property Taxes: Applicable to assets that can be moved from one location to another.
Assessment Methods:
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Real Estate Taxes: Assessed based on the value of the property, as determined by local assessors.
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Personal Property Taxes: Assessment varies and may involve valuations by tax officials or self-reporting by property owners.
Rate of Taxes:
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Real Estate Taxes: Much steeper than personal property taxes and will likely be thousands of dollars
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Personal Property Taxes: Depending on the state, you may only have to pay a few hundred dollars, according to WalletHub.
In Summary
Understanding these key differences is essential for property owners and taxpayers to navigate their financial obligations accurately. While real estate taxes contribute to the funding of local infrastructure and services tied to immovable property, personal property taxes focus on the assessment of movable assets.
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