Real estate taxes vs. property taxes: Are they the same thing?
All homeowners have probably heard the terms “real estate taxes” and “property taxes.” But have you ever wondered, is there a difference? Or is it just two different names for the same thing?
These terms are generally used interchangeably, and in most cases, that’s fine. But technically, they aren’t exactly the same. For instance, real estate taxes refer to real estate only, whereas property taxes can apply to other types of personal property as well, such as a car or a boat. And rates can vary wildly from one state or region to another — for example, according to the Tax Foundation, Hawaii’s property tax rate is just 0.31 percent, while New Jersey’s is 2.21 percent. Let’s break it down further.
What is real estate tax?
When you hear most people talk about property taxes on their home, or complain about their high property-tax rates, they’re really talking about real estate tax. “Real estate taxes are levies based on the assessed value of a residence that a homeowner must pay,” says Dustin Fox, Realtor and owner of Fox Homes in the Washington, D.C., area.
Real estate taxes are levied annually or semi-annually, and your local government determines the tax rate. The rate can vary greatly from one location to another. “The amount of real estate taxes a person must pay is based on the worth of the home and the region of the country they reside in,” Fox says. As in most real estate matters, costs will typically be higher in big cities and lower in more rural areas.
To calculate how much tax you owe, your home’s worth and location are taken into account. “The fair market value of a residence is multiplied by the specified percentage in each municipality to arrive at the tax assessment value, which is used to calculate the real estate tax rate,” Fox says.
What is property tax?
Real estate tax can actually be thought of as a type of property tax, which is why the terms are often used interchangeably. But property tax can also refer to taxes on other kinds of personal property, not just land or homes. These are taxes on individual items not permanently affixed to land. “It can be difficult to comprehend the differences between personal property taxes and real estate taxes,” Fox says. “Personal property taxes apply to tangible and movable personal property, such as transportation vehicles,” Fox says.
Personal property taxes vary depending on jurisdiction and item. Some items may not be taxed at all, and if they are, the rates tend to be much lower than real estate taxes. For instance, one common personal property tax is vehicle registration. When you register your car each year, your state may charge only around $50 — considerably less than what you’d pay on even the most affordable home.
According to a report from the Urban Institute, states and local governments collected 17 percent of their general revenue from property and real estate taxes in 2019. This amounted to $577 billion in revenue, higher than the revenue from sales tax, individual income tax and corporate income tax.
Real property and personal property
To further confuse matters, you may hear real estate taxes also referred to as “real property taxes.” Real property is a term used when describing real estate — it’s land, or a structure that’s affixed to the land, like a house. Personal property, on the other hand, refers to less-permanent possessions, like boats, cars or RVs. Many personal property items may not be taxed at all.
Real estate taxes vs. property taxes
This chart outlines the main differences between the two:
| Real estate taxes | Property taxes | |||
|---|---|---|---|---|
| What is taxed? | Real property, meaning land and permanent structures affixed to it | Personal property, meaning possessions such as cars, boats and RVs | ||
| Who levies the tax? | Local governments, typically | State governments, typically | ||
| Under what circumstances is it charged? | Real estate taxes must be paid by all homeowners | Property taxes are only charged on certain items |
Bottom line
The terms “property taxes” and “real estate taxes” are often used interchangeably, but technically, there are differences. Real estate tax applies to real property, meaning land and homes built on that land, whereas property tax can apply to that and other types of possessions as well — personal property, like a car, as well as real property.
