If you’re new to the world of real estate, you might be a bit confused by all the taxes that are assessed. To many people, the words “property tax” and “property tax” sound like they are the same, but there are important differences. Let’s take a look at them.
Property taxes are taxes based on the assessed value of the property. They are assessed on private properties and the funds are raised by local governments. Property taxes are the ones we often hear about that fund schools and pay for road repairs.
Property taxes have two subcategories. There are certainly property taxes that are property 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 outdoor 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 the registration fees you pay for your car are 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 a motorhome, it is considered personal property because it can be moved, even if you live full time. If it is 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 taxable value on which these taxes are based? Every local government has a department that reviews the actual value of a property. They look at the structure and value of the land itself. Sometimes they calculate these values separately and sometimes they are examined together. The tax rate is a lower percentage of the taxable value. For many areas, the tax rate is 70% to 80%, which then reduces the value of the house, and therefore the amount on 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. These fees go 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 item’s value. Each state and county will have their own regulations on how they calculate personal property taxes. In addition, each state as well as the federal government allows a tax deduction on personal income tax forms for property taxes that were paid in a given year.
Some owners may also benefit from exemptions which help to reduce the tax burden. These exemptions are often for injured service members, the disabled, and the elderly.
Hope this helped clarify the differences between property taxes and property taxes. Although they sometimes overlap, they are also very different. It all depends on the item being taxed.