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Jennifer Nelson writes about all things money--personal finance, investing, saving, credit cards and insurance for numerous publications including AARP, Next Avenue, Credit Karma, Real SImple, Citi and many others.
Updated July 28, 2023 Reviewed by Reviewed by Doretha ClemonDoretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder.
If you own a home, you’re likely familiar with real estate taxes. You may even call them "property taxes," since the terms have become interchangeable. Many people may not realize the two taxes are not identical.
Real estate taxes are the taxes you need to pay on the assessed value of your home that the municipality in which you own your property charges you. Personal property taxes are the taxes on moveable items you own, such as cars, boats, equipment, and furniture.
Real estate taxes are annual taxes a homeowner must pay on the assessed value of their house. Every city and state municipality determines how much the real estate tax rate is by multiplying the fair market value of a home by the predetermined percentage in that municipality to arrive at the tax assessment value.
Ever hear people complain about the high cost of real estate taxes in their area? This is what they’re referring to, and higher tax rates are often found in large cities like New York or Los Angeles.
The amount of real estate taxes you pay will depend on how much your home is valued at as well as the part of the country you live in. For example, a rural city in Oklahoma likely has a much lower real estate tax rate than a popular big city on one of the coasts or in a major metropolis like Dallas or Chicago.
Let’s say your house has a fair market value of $350,000 and the predetermined percentage in your municipality is 65%. The tax assessment value of your home is $227,500, or $350,000 x 65%.
If your local tax rate is 3%, then you would pay $6,825 in real estate tax per year. If your local tax rate was higher, say 8%, you’d pay $18,200 on a similarly valued home. Location, location, location.
Property tax is another name for personal property tax. Your personal property refers to items that aren’t permanent or items that are movable. For example, your car is personal property and when you register it every year, you’re essentially paying a property tax on it.
Things like boats, planes, campers, RVs, ATVs, farm equipment, and business equipment like furniture or machinery are taxed under personal property. Since they’re all moveable, a personal property tax is assessed on their value, similarly to the way your home’s tax value is assessed.
It is interesting to note that mobile homes are taxed as personal property rather than real estate. It is true that people live in them just as they would in a house, but technically, they’re moveable. However, if you own the land that you have a mobile home on, it would be taxed under real estate taxes on its assessed value.
How much you pay for your personal property tax also depends on your city and municipality and the going personal property tax rate, as well as the assessed value of each personal item.
First, the rate of taxes that you pay is different. Suffice it to say that real estate taxes are much steeper than personal property taxes. For example, vehicle property taxes will incur you a few hundred dollars, depending on the state.
A home is assessed at a much higher value with a much higher tax rate. Even the cheapest real estate taxes in the country for a modestly valued home would likely be thousands of dollars.
Second, you may be able to deduct real estate taxes on your home as expenses on your federal tax return if you live in the home and itemize deductions on Schedule A. Personal property taxes may also be deducted if you itemize, but the deductions will be a lot less on a boat or RV than they would on your home and go in a different place on your federal return.
This is not only because your personal property typically has less value than a home but also because it’s taxed at a lower rate than real estate taxes.
New Jersey has the highest property tax of any state, with an average effective property tax of 2.21%. Illinois is the second-highest with an average rate of 2.05%.
The state with the lowest property tax is Hawaii, with a property tax rate of 0.27%. After Hawaii is Alabama, with a property tax rate of 0.39%.
Real property is generally considered to be structures that are built on land, above or under land, or affixed to land. These structures are permanently installed.
Although they sound similar, real estate taxes and personal property taxes refer to different types of tax. Your municipality charges an amount of money based on the assessed value of your home: the real estate tax. Moveable items—vehicles, business equipment, furniture—are taxed at a different rate, the rate for personal property.
One item that may be taxed as personal property rather than real estate might seem confusing. If the owner of a mobile home does not own the land the home is on, that mobile home will be considered personal property. If the mobile homeowner owns the land, then the land is assessed for real estate tax.
Now that you understand the difference between real estate taxes and personality property taxes, you may be less likely to use the terms interchangeably and more apt to understand the tax statements and bills you receive for each one.
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A contingency clause is a contract provision that requires a specific event or action to take place in order for the contract to be considered valid.
A bidding war is a situation in which potential buyers of a property vie for ownership via a series of increasing price bids.
A conditional offer is an agreement between a buyer and a seller that an offer will be made if a certain condition is met.
A down payment is a sum of money, usually a percentage of the cost the buyer pays at the outset of a purchase of a home or car.
A home equity loan is a consumer loan allowing homeowners to borrow against the equity in their home.
Recording fees are levies charged by government agencies to document real estate transactions in order to make them a matter of public record.
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