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

If you are new to the world of 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.

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

Property taxes have two subcategories. Certainly, there are taxes on real estate that are taxes on real estate, but there are also taxes on personal property. 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 duties. 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 are tax-exempt on the first $50,000 or $100,000 of inventory, depending on your state.

If you own an RV, this counts as personal property because it can be moved, even if you live in it full time. If it is located on land you own, you may have to pay real estate 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 analyzes what a property’s value really is. They look at the structure and value of the land itself. Sometimes they calculate these values ​​separately and sometimes they are looked at together. The appraisal rate is a lesser percentage of the appraised value. For many areas, the assessment rate is 70% to 80%, which then reduces the value of the home and therefore the amount against which the tax rate is calculated.

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

Personal property taxes are assessed as a percentage of the item’s value. 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 real estate 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 waivers are often for the wounded, disabled, and elderly military.

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 which item is taxable.