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Real Estate Tax vs. Property Tax: What You Need to Know

Real estate and property taxes can mean the same thing or different things. It depends on what’s being taxed. Check out our guide for understanding how these taxes work and how you can avoid overpaying on them with an experienced local agent.
Real estate and property taxes can mean the same thing or different things. It depends on what’s being taxed. Check out our guide for understanding how these taxes work and how you can avoid overpaying on them with an experienced local agent.

Real estate taxes are one of the most-complained-about types of taxes that Americans have to pay. Working with an experienced local real estate agent can ensure that you know about local tax laws before you buy or invest. However, once you’re already an owner, you’re subject to whatever changes made by state and local officials.

Here’s what you need to know about the difference between real estate and property taxes before you write a letter to your city council member.

Sometimes They’re the Same Thing

While these two terms are often used interchangeably, “real estate tax” and “property tax” can mean different things. Real estate taxes cover “real property” including houses, vacation homes, or rental property that you own. Property taxes can be levied against any kind of personal property including your car.

The taxes that you pay on your car every year could be considered a type of property tax. While it’s called a “registration tax,” it’s a tax on property.

When it comes to what federal, state, and local governments consider as real versus personal property, you’ll find that when they talk about real estate or property taxes, they mean a dwelling.

Some regions are exempt from taxes on real property, but these exceptions are exceedingly rare. One example is in communities that are in remote parts of Alaska. Otherwise, property taxes are collected to help pay for public works, public schools, and to keep public offices running.

Values Are Based on an Assessment

The value of your property determines the amount of taxes you’ll pay on your property. Professional property appraisers look at every property in a county to determine the fair market value of each building. This number is based on a variety of conditions but by and large, is how much a property would collect if sold in an open market.

Your local government sets the assessment rate, which is a percentage of that fair market value.

If a local assessment rate is 80%, then the taxes calculated are based on 80% of the value of a home. A home worth $200,000 would be assessed at $160,0000. Then, the home is taxed based on the assessed value.

If the local real estate tax rate is 1.5 percent, then that would be calculated against $160,000. In this example, the taxes would cost $2,400 a year.

Personal Property Is Different

Ultimately, the difference between whether something is personal property or real estate depends on whether it’s “movable.” Land can’t be picked up and moved, so it’s considered non-movable and subject to property taxes. A barn, shed, or outbuilding on your property isn’t movable.

Movable items include any vehicles or furniture on your land. This distinction is loose but is generally limited to the distinction of whether or not something could be moved without damaging it. Walls and foundations would be damaged if a home were moved, so it’s squarely in the category of real estate to be taxed.

The things inside your home are personal property and not considered real estate because they could be loaded up on a truck and moved without damaging them.

Mobile Homes Are Murky

If your mobile home is your primary residence or a vacation home, then you could be in a different category. It depends on the land that your mobile home sits on. If you sit on rented land, then they’re personal property. Their licensing and taxing limits are more closely related to owning a car than a home.

When a mobile home sits on land that you own, it’s real estate. It’s subject to real estate taxes if it’s your primary or secondary residence.

Business Status Changes Things

While your personal property might be out of the reach of real estate taxes, if you use things for your business or to generate revenue, you could be taxed on them.

For example, a boat is personal property not subject to either type of tax. However, if you live on a lake and rent out one or more boats during the summer months, you could be taxed based on the worth of your boats.

While these aren’t officially property taxes, this is a case of your property being taxed. If you have a mobile home that you also use for business, you might be eligible for tax deductions.

Working With an Experienced Local Agent Ensure Lower Tax Bills

If you want to avoid paying costly real estate taxes, your best ally in this fight is an experienced local real estate agent. They know the ins and outs of local real estate and property taxes. Working with a Clever Partner Agent gives you access to a top-rated negotiator who can save you money on a home with an affordable tax cost. Plus, in 40 states, home buyers can qualify you for a $1,000 rebate to cut closing costs.

Connect with Clever and we’ll pair you with a Partner Agent who can answer all of your questions.


Reuven Shechter

Reuven Shechter is the Outreach Coordinator at Clever Real Estate, the free online service that connects you with top real estate agents to help save on commission. He spreads the word about Clever, disseminating studies to journalists and developing relationships with media outlets. Reuven is passionate about investing in real estate and creating lasting success for families. His writing has been featured in Max Real Estate Exposure, Leverage Marketing, and more.

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