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

Property taxes refer to personal property, such as a car or a boat. You’re probably familiar with paying property taxes yearly if you own a home. You may also call them real estate taxes, but you’d be mistaken to think they’re the same thing. The terms “real estate taxes” and “property taxes” are often used interchangeably, and they can often be. However, the difference is that real estate taxes refer to taxes on real property, such as your home, rental property, and any other physical property you own.

Both types of taxes are assessed based on the value of the item. But how much you pay in tax depends on whether classified as real property vs. personal property.

Are you confused yet? Don’t worry, as here we’re going to lay out all the critical differences between real estate and personal property taxes.

Defining Real Estate Taxes

Each year, every homeowner must pay an annual tax based on the assessed value of their home. This tax rate is determined by each city and state municipality by multiplying the home’s fair market value by a predetermined percentage set by the city. The higher your property value and the higher the predetermined local rate is, the more you’ll pay in taxes. Ever heard someone complain about the high real estate taxes in their area? This is what they are pondering.

Real Estate taxes are levied on “real property,” which the IRS defines as land and anything built on or permanently fixed. Including houses, condos, garages, industrial buildings, and anything built underneath them. The revenue generated by these taxes goes towards paying for local services such as road maintenance, snow removal, public schools, and the operation of regional government offices.

How Do Real Estate Taxes Work?

When estimating the property’s fair market value (FMV), an appraisal is completed by a professional property appraiser. In New York State, determining your real estate tax rate means adding up tax rates from at least three different jurisdictions – counties, towns or cities, and school districts. This means you can find widely separate tax bills in a single town. Statewide, the average real estate tax is $30.35 per $1,000 of home value (3.033%), with the highest regional average being (unsurprisingly) Central New York at $34.53 per $1,000.

In most cases, you can pay your real estate taxes directly through your local tax office. Each year, you’ll receive a bill in the mail with payment instructions at around the same time. All real estate owners get these bills, and you must pay them on time and in full. Failing to pay your real estate taxes will result in your municipality issuing a lien against the property. Once a lien is on your property, you could lose your home in a tax sale, like a foreclosure.

Typically real estate taxes are divided into monthly installments in your mortgage payments for buyers who finance their purchases. Your lender usually holds these funds in an escrow account until they come due quarterly. At this point, your lender will pay them on your behalf. How much your lender charges you for these tax installments will be based on their estimate of your annual tax bill. If they estimate too high, you can expect to get a refund. These refunds are typically automatic, but if not, you’ll have to file a refund request form at your county or municipality’s Treasury website.

All of this will be stated in terms of your loan contract. Fail to stay current on your real estate taxes, and you’ll be in default under the mortgage agreement terms. Your lender will then begin foreclosure proceedings in the same manner as if you had fallen behind on your mortgage payments.

Defining Personal Property Taxes

Although the name is very similar (and often used interchangeably), property taxes work differently from real estate taxes. This is an annual tax on what the IRS calls “moveable assets,” like a car, a boat, a mobile home, or a plane. When you pay to register your vehicle each year, this is a personal property tax.

As with real estate, personal property is taxed as a percentage of an item’s value. As its value goes down, so does the tax rate. Your city and municipality determine how much you’ll pay in personal property taxes. It’s up to you to report all moveable assets on your tax return. In NYC, property tax exemptions and abetments are available for specific individuals to lower their property tax bills.

As with real estate taxes, you must pay your property taxes in full and on time. Not staying on top of them will result in fines and liens against your property.

Understanding the Difference Between Real Estate Taxes and Property Taxes

It’s not always easy to keep the difference between the two clear in your head. It certainly doesn’t help that both terms are often used interchangeably and are assessed based on the item’s value. The general rule of thumb is that; it counts as personal property if you can move something without damage. If you cannot move it, you pay real estate taxes.

Final Thoughts

There are a lot of taxes involved in real estate, although most of them are handled during the closing process. Every year you own a property, you are responsible for paying your real estate taxes. You really can’t afford to fall behind on them, as the consequences can be severe if you do. Working out your taxes can be difficult, so if you have any doubts, consult an experienced tax professional. There are ways to lower them, and you should investigate any options available.