Difference Between Real Estate Tax and Property Tax

Edited by Diffzy | Updated on: September 21, 2022

       

Difference Between Real Estate Tax and Property Tax Difference Between Real Estate Tax and Property Tax

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Introduction

You're undoubtedly used to paying property taxes on a yearly basis if you own a home. You may not be aware, however, that property taxes are technically termed as "real estate taxes," and that there is another type of property tax that you may be required to pay.

Both forms of taxes are calculated using the market value of your home. What counts as real vs. personal property, and how each category of property is taxed, are the main distinctions. It's understandable if you're perplexed, but there's no need to be. Continue reading to learn about the key distinctions between real estate taxes and personal property taxes. The purchase of real estate and property, whether for investment, personal use, or business purposes, has its own set of tax implication. Despite the fact that the cost of real estate and property is a capital investment that generates no immediate tax benefit or obligation, the purchase triggers a slew of tax regulations that the owner must follow throughout the property's life cycle. The phrases real estate and property are frequently interchanged. While this is not the case, they can easily be mistaken for one another because they refer to the same item. The following factors are taken into account when determining whether an object is subject to real estate tax or property tax obligations.

  • Whether the property can be moved
  • Whether or not the property is intended to be permanent.
  • The amount of harm that will be done to the property when it is transported
  • How is the property attached to the land?
  • The dimensions and costs of transporting the components
  • The type and quantity of moving equipment necessary

Real Estate Taxes vs. Property Taxes

  1. Nature: Real estate taxes are levied on anything that is related to a piece of land. Property taxes, on the other hand, are levied on privately owned property that is not linked to land and can be moved.
  2. Real estate taxes are paid on a monthly basis. Real estate tax is paid directly to the local tax assessor or included in the monthly mortgage payment for a homeowner. Property taxes, on the other hand, are a yearly levy on moveable property.
  3. Type of property taxed: Unlike real estate taxes, property taxes are levied on private property.

We will never be able to avoid paying taxes. As a result, it is critical that the general population be aware about all forms of taxes and the rules that apply to them, as well as their tax duties. Things like what property is taxed, defaulter penalties and fines, and when the tax is due must all be followed.

  • Anything attached to or related to the land is subject to real estate taxes. Property tax is a tax that is levied on privately owned property that is not tied to the land.
  • Real estate taxes are paid to the tax assessors in your area on a monthly basis. Property taxes are paid to the government authorities on an annual basis based on the moving assets.
  • Real Estate Tax is a tax on real estate. Private property is included in the property tax.
  • Real Estate Tax is classified according to the type of building or house, such as an apartment, a terraced house, a duplex, a villa, or a haveli.
  • Land, improvements to land, personal property, and intangible property are the four forms of property tax.
  • Buildings, crops, houses, garages, and other real estate taxes are examples. Cars, boats, jewellery, electrical devices, art, and other items are examples of property tax.

Difference Between Real Estate Tax and Property Tax in Tabular Form

Table: Real Estate Taxes vs. Property Taxes
Parameters of comparison
Real Estate Tax
Property Tax
Nature
It's about the land.
Related with the property.
Period
Monthly
Annually
Type
Real Properties
Private Properties
Categories
Apartments, terraced houses, duplexes, villas, and havelis are only a few examples.
Land, personal property improvements to land, and intangible property are all examples of tangible property.
Examples
Buildings, crops, houses, garages, and other structures
Automobiles, boats, jewellery, electrical devices, art, and so on.

What are Real Estate Taxes?

These are taxes on land or anything linked to land that is privately owned, such as buildings. Real estate taxes are based on a percentage of a property's assessed tax value. In most cases, the money raised from these taxes is used to fund local services including snow removal, school construction, road upkeep, and local government operations. In an email to The Balance, Thomas J. Williams, an accountant and co-founder of tax website Deducting the Right Way, said that counties and local municipalities impose property taxes on the real estate you own to raise revenue for their operational budgets."It assists in defraying the costs of providing public services, safety, and schools." Building materials that are attached to the land are also recognised as real estate property. Natural trees and plants that grow on the land are likewise categorised as real estate. Plants that require human cultivation, on the other hand, are not included in this list.

How Real Estate Taxes Work?

Real estate taxes are annual assessments on the assessed value of a residence that a homeowner must pay. To compute the real estate tax rate, each city and state municipality multiplies the fair market value of a residence by a predetermined percentage in that municipality to arrive at the tax assessment value. Have you ever heard someone lament the high expense of real estate taxes in their neighbourhood? This is what they're talking about, and it's common in large areas like New York or Los Angeles to have higher tax rates. The amount of real estate taxes you pay is determined by the value of your home as well as the region of the country where you live.A rural town in Oklahoma, for example, is likely to have a lower real estate tax rate than a popular big city on one of the coastlines or in a major metropolis like Dallas or Chicago. These taxes are paid by all real estate owners, and it is critical to pay them in full and on time. "Failure to pay a property tax payment might result in the town placing a lien on the property and initiating foreclosure proceedings," Williams explained.

How Real Estate Taxes Are Determined?

If your home has a fair market value of $350,000 and your municipality's predefined proportion is 65 percent, your tax assessment value is $227,500, or $350,000 x 65 percent.If your local tax rate is 3%, your real estate tax bill will be $6,825 per year. If your local tax rate was greater, say 8%, you'd spend $18,200 for a home worth the same amount in another location. It's all about the location, location, location.

How Do You Pay Real Estate Taxes?

Property taxes are frequently divided into instalments and put onto your monthly mortgage payments if you are financing your house. The money is held in an escrow account until your property taxes are due, at which point the lender pays them on your behalf. It's worth noting that if the lender's estimate is too low, you'll wind up paying less in property taxes than you should based on the existing escrow. In this situation, your escrow requirements would be automatically increased each month in the future. Your lender will estimate your annual tax bill to determine the amount of your monthly payments. You'll get a refund if the lender's estimate is too high and you end up overpaying. This should happen automatically, or you can fill out a refund request form on the Treasury website of your county or municipality.

In some situations, you may be able to pay your property taxes to your local tax office directly. A bill with payment instructions will be mailed to you.

What is Property Tax?

Property tax has existed since ancient times, and it was levied on citizens by the governments at the time. It came in various forms, such as crops, animals, land oil, and so on. Tax assessors were the people who collected property taxes in ancient days, and they were respected. In England throughout the Middle Ages, it was fairly usual for peasants to pay the king the tax that they had rented from their owners. The way taxes were levied on the property is also hinted at in the records. Property taxes are levied on items of privately owned property that are not linked to land and can be moved around. Furniture that is not attached to the property, cars, computer equipment, yachts, jewels, and art are examples of personal property. State and local governments are in charge of collecting these levies. The most typical method of applying property taxes is at the time of sale.

What Are Personal Property Taxes?

Personal property tax is sometimes known as property tax. Items that aren't permanent or moveable are referred to as personal property. Your automobile, for example, is personal property, and you pay a property tax on it every year when you register it. Personal property includes things like boats, planes, campers, RVs, ATVs, farm equipment, and commercial equipment including furnishings and machines. Because they're all movable, they're subject to a personal property tax, similar to how your home's tax value is calculated.. It's worth noting that mobile homes are treated as personal property rather than real estate when it comes to taxes. True, people live in them just like they would in a house, but they are technically mobile. If you own the land on which your mobile home is situated, you will be subject to real estate taxes on the assessed land value. The amount of personal property tax you pay on these items is determined by your city and municipality, as well as the current personal property tax rate and the assessed value of each personal item.

How Do Personal Property Taxes Work?

Personal property taxes are also computed as a percentage of an item's value, which, according to Franco, often falls with time as the item's perceived value decreases. County or local governments levy these taxes, and they have the option of including different types of property in the tax assessment.

These taxes are often self-reported on your tax return, according to Williams.

A limited amount of property will also be exempt from reporting in most towns. If your city exempts the first $50,000 in personal property and you own $70,000, you only have to pay taxes on the remaining $20,000 in personal property. Make sure you pay your personal property taxes on time once again. "Failure to pay or disclose tangible goods can result in fines and liens," Williams explained.

The Bottom Line

Real estate taxes and personal property taxes are two different forms of taxes, despite their similarity in sound. Real estate tax is a fee levied by your municipality based on the assessed value of your home. Vehicles, business equipment, and furniture are all taxed at a different rate, the personal property rate. One thing that could be taxed as personal property instead of real estate could be perplexing. A mobile home is considered personal property if the owner does not own the land it sits on.The land is assessed for real estate tax if the mobile homeowner owns it.You're less likely to use the phrases interchangeably now that you know the difference between real estate taxes and personality property taxes, and you're more likely to grasp the tax statements and bills you receive for each one.

Conclusion

The government of a country is in charge of both Real Estate Tax and Property Tax. Both taxes should be paid to a region's respected authorities. Both taxes contribute to the country's development and are accountable for its economic progress. It also strengthens the country's financial position. Both taxes are intertwined. It's frequently mistaken for one. Property tax in many countries includes real estate tax. However, in the United States, real estate taxes are quite essential. The term "property tax" refers to both the property tax and the real estate tax.

References

  1. https://link.springer.com/content/pdf/10.1007/BF00216188.pdf
  2. https://www.journals.uchicago.edu/doi/abs/10.17310/ntj.2003.1.03

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"Difference Between Real Estate Tax and Property Tax." Diffzy.com, 2022. Sun. 02 Oct. 2022. <https://www.diffzy.com/article/difference-between-real-estate-tax-and-property-591>.



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