Real Estate Taxes vs. Property Taxes

Is real estate taxes the same as property taxes? Real estate and property taxes are terms often used interchangeably but have different meanings and implications for property owners. Understanding the difference between these two types of taxes is crucial for anyone who owns or plans to own real estate

Real Estate Taxes

These are taxes levied on the value of real estate properties. They are imposed by local governments and are established by the property's assessed valuation. They can include taxes on land, buildings, improvements, and other structures attached to the land.

Property Taxes

Property taxes are a broader term that includes all taxes levied on your property. These taxes are collected by various government entities, including local, state, and federal governments.

Your personal property consists of anything that is not affixed to the ground in a permanent manner and can be transported from one location to another. For instance, Your vehicle is considered a piece of personal property, and as such, you are required to register it annually. You are paying a property tax on it as if it were a piece of real estate property. This is due to the fact that the cost of the property's insurance is included in the registration charge.

Personal property includes objects such as boats, planes, campers, recreational vehicles, all-terrain vehicles (ATVs), farm equipment, and business equipment such as furniture and machinery. Because they can be relocated to a new location, the entire value of them is subject to a personal property tax. 

Comparison: Real Estate Taxes vs. Property Taxes

Similarities

• Both are levied on property, and the amount is based on the value of the property.

• The funds collected from these taxes support public services like education, infrastructure, and emergency services.

Differences

Property taxes are levied on all property types, including land, buildings, and other structures. On the other hand, real estate taxes are assessed only on real property, including land and the buildings or structures on it.

Real estate taxes are built upon the property's assessed value, which the local government determines. The assessment is usually conducted every few years and considers the property's location, size, and condition. In contrast, property taxes are a percentage of the value of the property, determined by an appraisal or market analysis.

States With Highest Property Taxes

Property taxes in New Jersey are among the highest in the country, with rates well above the 2% threshold. Another region of the country with high property taxes and pricey homes is New England. The region's average home price is also high.

Others include:

• Illinois at 2.27%

• New Hampshire at 2.20%

• Connecticut at 2.08%

• Wisconsin at 1.95%

Factors Contributing to Higher Property Tax Rates in These States

• High property values

• High government spending

• Limited state funding

• High demand for public services

• Reliance on property taxes to fund public services

States with Lowest Property Taxes

The states that have the lowest property taxes are as follows: 

• Alabama at 0.42%

• Louisiana at 0.51%

• Delaware at 0.55%

• West Virginia at 0.59%

Factors Contributing to Lower Property Tax Rates in These States

• Reliance on other revenue sources, like tourism or corporate income taxes

• Homestead exemptions provide property tax relief to homeowners

• Low property values

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How Are Real Estate Taxes Calculated?

The calculation process for real estate taxes varies by jurisdiction but generally involves multiplying the property’s valuation by a tax rate. The resulting amount is the annual tax bill for the property owner.

In order for the local government to determine how much your house is worth for the purposes of the tax rolls, they will request an appraisal of the property. Evaluations are carried out on a yearly basis in a number of different regions all over the world. 

For example, if the current market worth of your home is $300,000 and the local government assesses taxes at a rate of 60% of the value, then the amount upon which you will be required to pay taxes will be $180,000. 

Factors Considered in Determining Real Estate Tax Amounts

• Property value: The higher the property's assessed value, the higher the real estate taxes.

• Tax rate: The tax rate can vary based on factors like the local budget, the level of services the government provides, and the tax base.

• Property Size: Larger properties have higher assessed values and, therefore, higher real estate taxes.

• Property Use: Commercial properties tend to have higher assessed values resulting in higher real estate taxes than residential properties.

Tax Exemptions

Be certain that any prospective exemptions for which you might qualify are taken into account. Residents of the vast majority of cities and municipalities are exempt from paying property taxes if they fall under one of a number of different categories that have been predetermined. It is also possible that in certain circumstances, there will be no requirement to make any kind of payment toward property taxes at all.

Millage Rates

Millage rates are the typical term used to refer to taxes levied against property. A tax that is assessed on a per-thousand-dollar basis is referred to as having a mill rate, as opposed to a tax that is calculated on a per-dollar basis. In the event that the mill rate on your property is 0.001, you will be required to make an additional payment of $1 for each $1,000 that your home is worth.

Once you have determined the amount, divide it by 1,000 once you have found out what the mill rate is for your county. After that, you should determine how much you are behind on your property taxes by multiplying the mill rate by the assessed value (not the appraised value) of your home.

Bottom Line

Real estate taxes are taxes paid on land and any permanent fixtures, like buildings. Property taxes are a broader term that covers any tax assessed on personal property, including cars and boats.

When selling a property, taxes can be a complex issue, and it is important to have an experienced real estate agent who can guide you through the process. A good agent can explain the tax implications of selling your property and help you navigate tax-related paperwork.

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