Is real estate tax the same as property tax? It's complicated.
Each year in the U.S., around 28% of Americans hire an accountant to prepare their taxes, while 34% use a tax software (like TurboTax) and 8% visit a brick-and-mortar tax preparer (like H&R Block) to get their taxes done, according to GOBankingRates. This means that over 70% of Americans don’t prepare their taxes themselves.
Only 8.5% of Americans use Internal Revenue Service (IRS) forms to calculate their taxes themselves. This is because our tax code can be fairly confusing. And that’s just for income tax—things get much more complicated when you factor things like property tax and real estate tax into the equation.
One thing that often confounds people is the difference between real estate tax vs. property tax. Read on for the inside scoop on these two terms.
Is real estate tax the same as property tax?
Real estate tax and property tax are interchangeable terms, said Riley Adams, a licensed CPA certified in Louisiana who currently works as a senior financial analyst for Google in San Francisco.
“It’s a misnomer to think these two items are different when, in fact, real estate tax and property tax are actually the same thing,” Adams says. “The proper term used by the IRS is real estate tax, but most refer to it simply as property tax.”
The confusion stems from the fact that there is also a type of tax called personal property tax, which differs from real estate tax, and is often also referred to as property tax. Both real estate tax and personal property tax are referred to as property tax.
So what is the difference between real estate tax and personal property tax? Real estate tax refers to the amount paid on the assessed value of someone’s home and land, while personal property tax encompasses both real estate and personal and business property, like a car, mobile home or boat.
What is real estate tax?
Real estate tax applies to immovable property like land and the structures permanently attached to that land, like a home, Adams said.
Real estate tax is typically paid on the local level, not the state level, said Vincenzo Villamena, managing partner of Global Expat Advisors, a CPA firm.
Each year, homeowners pay their tax-assessing district, or tax assessor, a real estate tax, Adams said. People often refer to this colloquially as property tax.
If you have a mortgage, things work a little bit differently. “If [you’re] still paying for your home through a mortgage, the mortgage servicer will collect this assessment each month and store it in your escrow account until the time comes to pay the property tax,” Adams said.
Real estate tax is calculated every year, or every five years, in some cases. The amount you pay is determined by a tax assessor, who will take the assessed value of your property and charge you the tax rate set by the taxing authority where you live, according to Investopedia. (The tax rate where you live is likely referred to as a mill rate.)
What is personal property tax?
Personal property tax, Adams said, includes real estate, like a home, as well as movable property, which could include things like cars, RVs, boats, planes and even furniture. Someone who lives on a boat or in a mobile home, for example, would pay personal property tax, not real estate tax, since their property is movable.
Although real estate tax is usually paid on the local level, personal property tax, Villamena notes, can sometimes be paid on both the local and the state level.
You make personal property tax payments when you pay your annual registration or license fee for the personal property in question, Adams said. Similar to real estate tax, the amount you pay in personal property tax is determined by a tax assessor. To establish value for property like cars, many tax assessors reference the Blue Book Value of the vehicle in question.
Real estate tax vs property tax—what does it mean for me?
Real estate tax vs. property tax can be a confusing concept to grasp, mainly because the term property tax can refer to either type of tax.
A simple way to remember things is that real estate tax only refers to immovable properties like a home, while personal property tax includes homes, as well as personal properties like cars, RVs, boats and planes.
Real estate tax is paid annually or bi-annually to your local tax assessor. Or, if you have a mortgage, it’s likely paid monthly through an escrow account you hold with your mortgage lender. Personal property tax, on the other hand, is paid through your annual registration or license fee for the personal property in question.
If you want a tax benefit for real estate or personal property come tax season, you’ll have to itemize instead of using the standard deduction. Villamena notes that both forms of tax are deductible on a Schedule A form as itemized deductions.
Armed with the above knowledge, you’ll be able to easily ascertain whether the term property tax is referring to real estate tax or personal property tax the next time it comes across your radar.