Real Estate Taxes Vs. Property Taxes: What’s the Difference?

When you purchase a home, you’ll discover that you need to start paying real estate taxes. However, you might already be being property taxes as well. Despite how similar these two types of taxes are, they are levied on different items. While personal property taxes involve all movable property that you own, real estate taxes mainly center around any home or other piece of real estate in your possession. The following guide provides a detailed overview of the difference between real estate and property taxes.

What Are Personal Property Taxes?

Even though real estate taxes are oftentimes referred to as property taxes, they are only a type of property tax. The two common types of property taxes include real estate taxes and personal property taxes. Personal property taxes apply to any movable items that you currently own, which include everything from boats and planes to RVs and other vehicles.

Some of the annual vehicle registration fees you owe are based on the value of your vehicle. These fees are considered to be personal property taxes. You’ll likely need to pay these taxes on the state or local level. Keep in mind that certain areas don’t collect personal property taxes, which include states like New Hampshire and Montana. Once collected, these taxes are typically used to fund roads, schools, and other public works projects.

What Are Real Estate Taxes?

Also referred to as property taxes, real estate taxes are levied by the government on any immovable land or real property that you own. These payments are usually made on an annual basis.

Any property or land that can’t be physically moved qualifies as real property. Land plots, buildings, and homes are a few examples. Real estate taxes typically fund community projects, infrastructure upgrades, and school upgrades. Many lenders will attach real estate taxes to monthly mortgage payments.

How These Taxes Differ

There are many ways in which real estate taxes and property taxes differ. In general, you should expect real estate taxes to be considerably higher when compared to personal property taxes. For instance, an annual car registration for a vehicle that’s valued at $20,000-$60,000 will come with an annual property tax of $40-$75.

Any real estate you end up buying will cost much more than a car, which means that your real estate taxes will be much higher. Keep in mind that real estate is taxed at a higher rate as well. The most affordable real estate taxes in the U.S. still require homeowners to pay a few hundred dollars every year.

It’s possible for you to deduct the real estate taxes you pay for your home as expenses when you fill out and submit your federal tax return. This tax break is only available if you live in that home and have chosen to itemize your deductions via Schedule A.

In the event that you itemize your deductions, it’s possible for you to claim deductions on your personal property taxes. However, the deductions for taxes on an RV or boat are considerably less than the deductions on real estate taxes for a home. They also can’t be claimed on a federal return.

While the IRS typically uses the term of “real estate taxes” when talking about taxes on immovable property, consumers and homeowners usually say “property taxes” when speaking about the same thing. Regardless of how much real estate and personal property taxes you must pay, both types of taxes are paid on the local and state levels. They are also used to fund the same types of community projects, which include everything from infrastructure to schools.

Even though these two terms are often used interchangeably, personal property taxes and real estate taxes involve two different tax types. You might run into some issues when wondering what taxes must be paid on a mobile home. In this situation, personal property taxes are levied on the mobile home. However, real estate taxes are assessed on the land that the home is situated on.

This guide should cover every difference between property taxes and real estate taxes. Despite the similarities between these two types of taxes, it’s essential that you understand how they differ once it comes time to file your annual tax return. Deducting your real estate taxes can help you substantially reduce the amount of taxes you owe for the year.