Real Estate Taxes vs. Property Taxes: Understanding the Difference

Real Estate Taxes vs. Property Taxes: Understanding the Difference

Guide
May 06, 2024•2 min read

When it comes to owning property, taxes are an unavoidable part of the package. However, it's essential to understand the distinction between real estate taxes and property taxes. Let's delve into the differences between these two types of taxes with some examples to illustrate each.

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Real Estate Taxes

Real estate taxes, also known as real property taxes, are levied on the value of land and any structures attached to it. These taxes are typically assessed by local governments and are used to fund public services and infrastructure within the jurisdiction. Real estate taxes can be further categorized into two main types:

  1. Ad Valorem Taxes: These taxes are based on the assessed value of the property. The local government assesses the value of the property periodically, usually annually, and applies a tax rate to determine the tax owed. The tax rate is often expressed as a percentage of the property's assessed value.

    Example: Suppose you own a house with an assessed value of $250,000, and the local tax rate is 1.5%. Your annual real estate tax bill would be $3,750 ($250,000 * 0.015).

  2. Special Assessments: In addition to ad valorem taxes, property owners may be subject to special assessments for specific improvements or services benefiting their property, such as street repairs or sewer systems.

    Example: If your neighborhood undergoes road resurfacing, and the cost is divided among property owners based on frontage or property value, you might receive a special assessment bill for your share of the project.

Property Taxes

Property taxes encompass a broader range of taxes related to property ownership. While real estate taxes are a subset of property taxes, property taxes also include taxes on personal property, such as vehicles, boats, and business equipment. Here are some examples of property taxes:

  1. Real Estate Taxes: As discussed earlier, real estate taxes are assessed on the value of land and structures.

  2. Personal Property Taxes: These taxes are assessed on movable assets that individuals or businesses own, such as cars, boats, and machinery. The tax rates and assessment methods for personal property vary by jurisdiction.

    Example: If you own a car valued at $20,000 and the personal property tax rate is 2%, your annual personal property tax would be $400 ($20,000 * 0.02).

  3. Inheritance and Estate Taxes: These taxes are imposed on the transfer of property upon death or inheritance. The tax rates and thresholds depend on the value of the estate and the relationship of the beneficiary to the deceased.

Understanding the distinction between real estate taxes and property taxes is crucial for property owners to manage their tax obligations effectively. By knowing what each type of tax entails, you can plan your finances accordingly and ensure compliance with local tax laws.

Moe Ameen is a real estate investor, software creator, and general over-caffeinated human who somehow made automation cool (or at least tolerable). He built a cutting-edge real estate CRM because manually chasing leads is so last century. Specializing in creative finance, deal structuring, and making things unnecessarily efficient, he helps investors close more deals while doing less actual work. When he's not automating the real estate world, he’s probably pretending to work while staring at spreadsheets or convincing himself that buying another domain name is a good idea.

Moe Ameen | BILT CRM

Moe Ameen is a real estate investor, software creator, and general over-caffeinated human who somehow made automation cool (or at least tolerable). He built a cutting-edge real estate CRM because manually chasing leads is so last century. Specializing in creative finance, deal structuring, and making things unnecessarily efficient, he helps investors close more deals while doing less actual work. When he's not automating the real estate world, he’s probably pretending to work while staring at spreadsheets or convincing himself that buying another domain name is a good idea.

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