When people refer to property tax, they are generally referring to two distinct categories. The first category is the real estate tax, and the other the personal property tax. Real estate tax is often referred to as the real property tax, while the personal property tax has several different subcategories. When it comes time to pay your property tax, it is important to understand what you can write off as well as it’s general use and purpose. These tend to consist of either business, investment, or personal use. Note that these taxes only apply to actual property, not including copyrights, trademarks, or patents.
Real Estate Taxes
When it comes to deciding exactly how much you will pay in real property taxes, the taxing authority (both county and state) take into account the current fair market value using their own appraisal methods. This is distinct from a private inspection or assessment. Specifically, it refers to the appraisals done by that taxing authority. These appraisals do not just take into account the actual value of the land and the buildings on it when purchased, but also any man-made improvements to it. These improvements can include a pool, a porch/patio, fencing, or any other improvements that you have made after the purchase of your property.
Though they use their own appraisal system, generally there are ways to dispute or file a petition in court stating that you believe the fair market value they are using to assess your tax rate is unfair or inaccurate to the actual market rate. There is normally a stated process and time in which this can be done, and any disputes after this date will have to wait until the next fiscal year. In Texas, there was a law recently passed stating the property tax cannot be increased past a certain percentage year-over-year, which is something to keep in mind when estimating what your rate will be.
This rate is only tax deductible if it is a tax applied to all properties, and not a specific service or fee rendered only to your property (water or trash collection) or public improvements (water lines, public parking, streets, sidewalks, etc). If this applies, they can be deducted under schedule A. This applies to any homes owned, unlike other deductions such as mortgage deductions which only apply to your primary and secondary residences. These need to be itemized to be applicable.
Personal Property Taxes
Personal property taxes, on the other hand, generally will refer to taxes on man-made objects that can be moved. This is imposed on personal property for both individuals and businesses. Personal property are items that are not physically attached to the property, so this can include cars, boats, and aircraft. Generally, personal property taxes for personal use are tax-deductible, whereas any registration fees are not. But for businesses, the tax is not just limited to cars, boats and aircraft. Anything that will not stay with the property if it is sold, will apply here. This includes things such as chairs, phones, personal computers, fax machines, and anything else used in the course of business.
If you have any specific questions, it is highly recommended that you speak to an accountant. That being said, hopefully this crash course can help you tell the difference and understand the basics between real estate and personal property taxes.
