Many people use the terms interchangeably, but they aren’t exactly the same. Part of the confusion is because property tax is a term used for both real estate tax and personal property tax.
What Is Real Estate Tax?
Real estate tax is the annual tax that a homeowner pays on his home’s assessed value. To determine how much one must pay in property taxes, the fair market value of the home is determined. Then, the local county office multiplies the fair market value by a predetermined percentage, which gives the tax assessment value.
The amount of real estate tax home owner must pay depends on the value of his home and the area of the country that he lives in, which also can be seen at Southwest Edmonton Real Estate taxes. However, the county reaches the tax amount by multiplying the tax assessment value by a percentage which is the local tax rate.
For instance, if your house has a fair market value of $250,000 and the predetermined percentage is 70%, the tax assessment value of your home is $175,000.
If the local tax rate is 3%, then you would pay $5,250 in real estate tax per year.
What Is Property Tax?
The term property tax encompasses several things including real and personal property.
Real property includes land and improvements; the tax you pay on it is real estate tax, hence why some people use the terms real estate tax and property tax interchangeably.Did you know property #tax and real estate tax aren't the same? Click To Tweet
Besides real property, the term property tax also includes personal property, which is defined as things that are not permanent or moveable.
For instance, your personal vehicle is personal property, and you pay personal property tax on it every year when you pay for your annual registration.
Also, business furniture and equipment is taxed under personal property. It is not permanent and is moveable.
Those living in mobile homes are charged personal property tax rather than real estate tax because their homes are moveable and not permanent. (Moveable is generally defined as not causing damage to the walls if it is moved. A car can be moved without damage; a house would experience damage to the walls, so it’s not moveable.)
What is defined as personal property and how much you have to pay on that property depends on the state the you reside in.
There are reasons why the distinction between real estate tax and property tax are important, including the rate of tax that you pay and whether or not the tax is deductible on your income tax (as real estate tax is).
While many use the terms real estate tax and property tax interchangeably, they are not exactly the same thing. Property tax includes not only real property, but also personal property including vehicles, furniture, business items, and even stocks and bonds.