Understanding Real Estate Taxes
If you are like many homeowners then you enjoy being a property owner; but along with that enjoyment you also have a responsibility to pay your share of real estate taxes. You may know them as property taxes, but as a refresher keep in mind that real estate taxes are based on an assessed value of a parcel of land and any structures that might be built on it. By using a formula and calculating a variety of factors such as mill rate and assessed rate, a assessor can determine the assessed value of a piece of real estate. After the calculation is completed, a local tax rate is used to determine the amount owed. Tax rates vary from town to town and county to county and are typically owed on an annual basis or paid twice a year.
Real estate taxes are collected by the city or county in which the property is located. The range of taxes will vary widely depending on tax year, mill rate and market values. Be prepared because the taxes can be priced reasonably or can be high. One of the factors that determine your tax bill is based on whether your property is located in a prime location and receives a good amount of revenue from tourism. If you live in those areas you will have higher real estate taxes than unpopulated areas. Public records maintained by the municipality in which you live monitor improvements made to real estate that may have an impact on its value. While you may think that you are being overtaxed, the monies generated from these taxes help support many vital local programs, public services and facilities such as recreational parks, local schools and many other important city services.
Many times homeowners want to raise the market value of their property but neglect to consider that this also means a rise in real estate taxes. Regardless of property taxes, the advantages for the property owner are too numerous to ignore. By simply performing professional landscaping, you can tremendously increase their property’s value. The upside of increasing taxes means that as the taxes increase, so does home equity, meaning the chance for a home equity loan improves. Another advantage is that real estate taxes can be used as legitimate deductions when the time comes to file your income tax return that ultimately put more money back in your pocket. On the other hand when property values decrease, this can also result in lower taxes. When an owner decides to sell the piece of real estate at a lower value it can mean doing so at a loss.
If you take the time to do the research you find many great resources offering advice to property owners on how to lower your real estate taxes. There is some great advice that from moving to a area with lower property taxes to verifying information regarding the currently owned property is accurate and up to date at the tax office. Ultimately, knowing how your local assessor determines property value is also important. Another great source of savings is offered to those who are war veterans or on fixed incomes. You might also qualify for tax breaks if you own structures that use energy saving features.
Property Taxes Vs Real Estate Taxes
Do property taxes and real estate taxes mean the same thing? No they don’t and are very different in fact. Many people confuse these two terms because property is a very common term used for real estate. These two words are used interchangeably; thus, property and real estate tax are always being confused upon. Paying for your property tax however is very different as what you need to spend for your real estate tax.
Property tax is actually your personal property tax. As a normal citizen, you are taxed for personal belongings that are mobile and movable. These things may include your car, truck, furniture and even livestock. Property tax is often associated with a business; thus, you are taxed for personal things that are used for trade and industry. A motorcycle, for example, that is used for food delivery in a business must be included in your property tax list. The same goes for heavy equipment used by a construction company. Mobile things that are used to generate income are therefore taxable.
You are responsible for the annual registration of your personal property. The state often provides a form where you will list down all the items used in business. The amount that you need to pay is a percentage of the personal property value. The higher the value means that the higher taxes you need to shoulder. Tax regulations differ with every state with some states giving exemptions up to a certain amount or value of property.
While personal property tax involves movable things, real property tax is based on real estate. Real estate tax refers to the tax one has to pay for his home, ranch, farm and many other properties that cannot be moved or transferred. Mobile homes, therefore, don’t belong in this category as they can be transferred from place to place.
Real property tax is usually determined by an assessor who visits the property yearly and evaluates its worth. The assessed value of a property is computed by multiplying the local assessment rate to the fair market value of a property. This assessed value is then multiplied to a tax percentage which now becomes the final tax for your property. Rates vary with different states. Some states have a tax rate of 2% while others can go as high as 4%.
The income collected from taxes is used for local education, medical services, infrastructure, police protection and many more services for the benefit of the citizens. Exemptions may be granted to those who are disabled as well as to senior citizens and charitable institutions among others. War veterans may also be exempted from paying real estate and property taxes as well as religious organizations and certain educational institutions.
If you own real estate and personal properties that are used for business, then you need to pay real estate and property taxes on a yearly basis. Investors who own several pieces of land must pay taxes for all of their properties. As Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes”. One cannot avoid paying taxes but can choose to live with it and just strive to earn more money.
Property Taxes Vs Real Estates Taxes – What’s the Difference
If you are new to the world of real estate, you might be a bit confused by all of the taxes that get assessed. To many people, the words ‘property taxes’ and ‘real estate taxes’ sound like they are the same, but there are some significant differences. Let’s take a look at them.
Real estate taxes are taxes based on the property’s assessed value. They are assessed on privately owned properties and funds are collected by local governments. Real estate taxes are the ones we often hear about that fund schools and pay for road repairs.
Property taxes have two sub-categories. There are certainly real property taxes that are real estate taxes, but there are also personal property taxes. Think of real property as something that cannot be moved. These are things like the house, an external garage, a storage building, or a barn.
Personal property is defined as things that can be moved, like furniture. These taxes are sometimes called excise taxes. Your car is also personal property. Believe it or not, but that licensing fee you pay for your car is 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 exempt from taxes on the first $50,000 or $100,000 of inventory, depending on your state.
If you own an RV, this is counted as personal property because it can be moved, even though you might be living in one full time. If it is sitting on land you own, you might have to pay real estate taxes on that land, but not in combination with the RV.
So what is the assessed value that these taxes are based on? Each local government has a department that looks at what the value of a property really is. They look at the structure and the land value itself. Sometimes they calculate these values separately and sometimes they are looked at together. The assessment rate is a lower percentage of the assessed value. For many areas, the assessment rate is 70% – 80%, which then reduces the value of the house, and therefore the amount that the tax rate is calculated against.
It should be noted that HOA or condo association fees are not the same as real estate or property taxes. Those fees go directly to the association to cover costs of common area repairs and maintenance.
Personal property taxes are assessed as a percentage of the value of the item. Each state and county will have their own regulations on how they calculate personal property taxes. Also, each state as well as the federal government allows for a tax deduction on personal income tax forms for real estate taxes that have been paid in a given year.
There are also exemptions that certain homeowners might qualify for that help reduce the tax burden. These exemptions are often for wounded military, the disabled, and the elderly.
Hopefully this has helped clear up the differences between property taxes and real estate taxes. Though they sometimes do overlap, they are also quite different. It just depends on what the item is that is being taxed.
The Different Between Real Estate Taxes and Personal Property Taxes
It is often extremely easy to confuse the various taxes related to real estate, particularly when the terms used to describe each are so similar. For example, real estate tax is often referred to as property tax, which means it is easy to think that personal property tax must fall under that banner.
However, it is important to note that personal property tax is actually a completely separate issue, and thus needs to be treated as such and accounted for when you are filing your taxes.
Here we will take a look at the differences between real estate tax and personal property tax, so that you are no longer confused when dealing with either one of them.
Real Estate Tax
As mentioned, this is often also referred to as property tax. The lack of the word “personal” ahead of the phrase “property tax” is important because that indicates that you are actually talking about real estate tax.
In the simplest terms, this type of tax refers to any money that you have to pay on an immovable property. This can refer to any land that you own and any of the structures that are built on that land.
As such, it will apply to homes, commercial buildings and any other properties that have a permanent location. If you own the property directly this type of tax will usually be paid directly to your local tax assessor, or will be included as part of your monthly mortgage payment so that you pay it indirectly. The rate you pay is also liable to change based on the judgement of your local authority, so it is important to stay on top of any changes in policy.
Personal Property Tax
Personal property tax is different because it applies to any of your movable assets, rather than ones that have a permanent location. Like real estate tax, it is an annual tax that may change based on the judgement of the local government, so it is still important to stay on top of this kind of tax and budget accordingly.
As for what it covers, personal property tax is paid on everything from mobile homes, through to vehicles, boats and planes. Essentially, any item that you own that can be moved will be subject to this type of tax.
However, it is similar to real estate tax in the sense that the amount you pay is often judged based on the value of the item. For example, your vehicle license fee is based on the value of the vehicle itself, and is thus a personal property tax. The same goes for the other types of homes and vehicles mentioned here.
As such, if you have plans to purchase a recreational vehicle of any sort, it is important to speak to an expert so that you can determine how much tax you will need to pay on the vehicle. Whatever you do, don’t confuse the two and assume that paying for one means that you have paid for both.
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