If you are new to the real estate world, you may be a little confused by all the taxes being assessed. To many people, the words ‘property tax’ and ‘real estate tax’ sound the same, but there are some significant differences. Let’s see them.
Real estate tax is a tax based on the estimated value of the property. They are valued on privately owned properties and funds collected by local governments. Real estate taxes are what we hear a lot about funding schools and paying for road repairs.
Property tax has two sub-categories. Of course there is a real property tax which is a real estate tax, but there is also a personal property tax. Think of real property as something that cannot be moved. These are things like houses, external garages, storage buildings, or sheds.
Personal property is defined as objects that can be moved, such as furniture. These taxes are sometimes called excise taxes. Your car is also privately owned. Believe it or not, but the license fee you pay for your car is a type of personal property tax. If you own a business that repairs goods or sells merchandise, that inventory is privately owned. In most cases, you are exempt from tax on the first $50,000 or $100,000 of inventory, depending on your state.
If you own an RV, it counts as private property because it can be moved, although you may be living the full time. If it’s on land that you own, you may have to pay real estate taxes on the land, but not in combination with an RV.
So, what is the estimated value on which this tax is based? Each local government has a department that looks at the true value of the property. 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 rating level is the lower percentage of the graded value. For many areas, the valuation rate is 70% – 80%, which then reduces the value of the house, and therefore the amount of the tax rate that counts.
It should be noted that HOA or condo association fees are not the same as real estate or property taxes. The fee goes directly to the association to cover the cost of repairs and maintenance of the common areas.
Personal property taxes are assessed as a percentage of the value of the goods. Each state and county will have their own regulations on how they calculate personal property taxes. Also, every state as well as the federal government allows tax deductions on personal income tax forms for real estate taxes that have been paid in a given year.
There are also exceptions that certain homeowners may be eligible to help reduce the tax burden. These exceptions are frequent for the wounded military, the disabled, and the elderly.
Hopefully this has helped clear up the difference between a property tax and a real estate tax. Although they sometimes overlap, they are also very different. It just depends on what item is taxed.