What Is Real Estate Tax?
Real estate taxes are the taxes on land or anything attached to it. For instance, a privately owned building is also a part of real estate.
State or local government imposes this type of tax to generate revenue. Later, they use it to fund services like roadwork, school building, fire protection, and more.
If not for these taxes, local governments would struggle to fund the much-needed public services. Typically, these taxes are calculated based on the property’s value. So, the higher the property's value, the more tax the owner is obliged to pay.
Note that religious firms, like churches, are not taxable. A tax assessor determines the value of such properties and exempts church real estate.
Because real estate is the form of property you own, it would be fair to consider real-estate taxes a subcategory of property taxes.
How does it Work?
You must pay a real estate tax annually if you own a home. How much you are meant to pay is determined by assessing your home’s value.
Have you ever heard residents complain about high real estate taxes in a particular area? Here’s the answer!
Every state and city municipality determines the amount of real estate tax you owe by multiplying your home’s market value by the predetermined percentage in that municipality. For instance, large cities like Los Angeles or New York may have high tax rates. However, a rural city like Iowa will have a much lower real estate tax than Chicago.
Determining Real Estate Taxes
Consider you live in a home with a market value of $400,000. The predetermined percentage of your location is 75%. The tax assessment value of your home is:
$400,000 x 75% = $300,000
If the local tax rate is 4%, you must pay $12,000 annually as a real estate tax. If the tax rate is lower, consider 3%, you’d pay $9,000 yearly. Likewise, the tax rate switches from high to low based on the tax rate and the predetermined municipality percentage.
Does Real Estate Tax Bill Change?
A real estate property tax bill can change but under certain conditions. However, if the government is willing to generate more revenue from the real estate taxes, they will increase the assessment value.
Escalating the assessment value will naturally increase the value of your property while equally hiking the bills.
Another thing that may alter the real estate tax bill is the property's value. Naturally, the real estate value increases over time. Perhaps this explains why tax assessors reassess the value every few years.
How long tax assessors take to reassess the real estate value differs per country. However, the standard time period is somewhere between one to five years.
Similarly, a real estate value may decrease due to a natural disaster. However, if the local government doesn’t want to lose their revenue, they might do the exact opposite: increase the assessment rate.
Likewise, amendments in the government’s budget can also increase or decrease the real estate tax bill.
What Is Property Tax?
Property tax, also known as personal property tax, refers to movable items. For instance, your vehicle is subject to personal property tax. When you register it annually, you are actually paying a tax.
How Does It Work?
Interestingly enough, movable homes fall under personal property and not real estate. Yes, people live in them as they would in a home, but they are movable, nonetheless.
However, if you own a piece of land with a transportable home, you’d be obliged to pay a real estate tax based on the land’s value.
Properties in different classes are subject to different tax rates. For instance, residential, industrial, commercial, and vacant real properties would not have identical tax bills. Similarly, it also varies per:
- The assessed value of the personal items you own
- The ongoing personal property rate
- The city and the municipality you live in
A few other items that fall under the category of personal property tax include:
- Planes
- RVs
- Boats
- ATVs
- Farm equipment
- Business equipment
In the US, property taxes vary significantly per government. Why? Because around 13,500 local governments have the authority to assess real and personal properties.
If you reside in the UK, you are obliged to pay property tax to the Her Majesty’s Revenue and Customs (HMRC).
Indians, on the other hand, must pay property taxes to the Minor Civil Division annually.
Note that these are a few examples, and your city or country determines who you need to pay the taxes.
However, the assessor treasure officer determines the property tax for each region to ensure that taxable individuals are not imposed more than permitted by the law.
The tax again is collected to support the management of public parks, schools, road districts, libraries, fire protection, and more.
Determining Property Taxes
The value of the property determines property taxes. Generally, tax assessors assess the owner’s property value every one to five years. Plus, they charge a reasonable rate given by the taxing authorities.
Typically, tax assessors use the mill levy method to calculate the value. One mill represents 1/10th of a cent. So, a mill would be equal to $2 for a $2,000 assessed property. Tax charges for every jurisdiction in a particular area are determined individually.
Later, they are added to figure out the mill rate of the entire area. Typically, every city has the authority to impose taxes against properties within its bounds.
How Does Real Estate Tax Differ From Property Tax?
Real estate and property taxes are similar in the following ways:
- Individuals pay them to the related authorities
- The government controls them both
- They contribute to the country's economic growth by allowing the government to generate revenue and utilize them for developmental projects.
Nonetheless, there’s a fine line between both. Because people often confuse the two terms, it is crucial to understand the difference between the two. Here’s how real estate and property tax differ.
Differ By Definition
The primary difference between real estate and property tax is that the former is related to the land, whereas the latter is related to privately owned properties.
Real estate examples include buildings and related materials, whereas private properties are vehicles, jewelry, RVs, farm and business equipment, planes, boats, etc.
To simplify it further, real estate is immovable, whereas personal property is moveable.
Payment Period
When you’re obliged to pay both taxes differs. For instance, real estate taxes are collected monthly, whereas private property taxes are annual taxes levied on movable items.
Deductions
You can deduct real estate taxes on your property as costs on the federal tax return if you live there and itemize deductions. You also may be able to deduct personal property taxes if you itemize.
However, it won’t benefit you much because the reductions would be quite low on recreational vehicles or boats.
Note that this does not happen because your personal property is less valuable than your home. The deduction procedure varies because the former is taxed at a rate lower than the latter.
Type of Property
The type of property involved also varies. Real estate tax includes real property. On the other hand, property tax is only levied on privately owned properties.
Tax Rates
One of the significant differences between real estate and property tax is this one. Real estate taxes are much more expensive than personal property taxes. Here’s how.
You can register a vehicle yearly for charges of $50-$80 which may hold the value of $30,000 to $70,000.
A home, on the flip side, is levied at a higher value with an increased tax rate. In fact, a cost-effective or cheap real estate tax easily runs into hundreds of dollars.
Things to Consider When Choosing Real Estate Tax Relief Service Providers
Managing taxes is not all fun and games. Regardless of your state, you have to pay numerous taxes to the government, which means there’s no easy way out.
Keeping track of the rules and regulations of all the taxes is not as straightforward. Therefore, choosing a professional company can ease the entire process for you.
A real estate tax settlement firm supervises you through the liable taxes and prepares your documents efficiently. However, you need to keep certain things in mind when hiring one.
Go for an Industry-Specific Agency
Not all tax settlement firms have specialized in real estate. So, even if the company’s claims seem promising, avoid going for one that lacks specialization in the related field.
An industry-specific company is aware of the subtleties of real estate taxes and can help you with decisions that impact your taxes.
Choose Someone Familiar With the Current Real Estate Rules
Tax rules and regulations are constantly changing. Real estate tax settlement firms keep track of the newest updates and provide in-depth information about the updated laws.
Although they handle the tax filing and reporting process, they apprise you about what changed or remained the same.
This helps you make informed decisions about your future investments and savings.
They Must Work to Achieve Your End Goal
You must be in harmony with the company you hire to achieve your end goals. Therefore, you must choose an experienced firm with dedicated teams who understand your unique demands and implement decisions in your best interests.
Don’t Undermine the Value of Qualifications.
Regardless of how skillful a company is, avoid choosing it if its team lacks the necessary qualifications. Make sure you ask the real estate tax relief firm about the educational background of its employees. You can also check for credentials online for validation.
Mistakes to Avoid when evaluating a Real Estate Tax Company
Taxes are often your largest expense. Therefore, committing mistakes on the road to spending your hard-earned money can cost you an arm and a leg. Here are a few miscalculations you must avoid.
Not Having a Kick-Off Call
A kick-off call largely determines how things will go in the future. But unfortunately, many individuals overlook the importance of a quick call.
Note that the story doesn’t end after you choose the right company.
When you effectively communicate with the agency, they understand what they need to do to meet your demands and help you prepare for your return.
Communicating Indirectly
You are responsible for paying your taxes, not anyone else. Real estate owners often do not communicate directly and may ask a friend or a family member to do it for them.
Remember, the first communication with your tax settlement company matters greatly. Indeed, you know your real estate better than anyone, and there is no point in choosing someone else to communicate things for you.
Picking a Company Randomly
Because you came across several real estate tax expert companies online, you shouldn’t opt for one randomly. Do your homework and research well about a company’s reputation.
Otherwise, you might hand over your tax preparation to an unskilled firm with an unprofessional team.
Know that a single person in the company won’t handle the job for you; an entire support team is working behind the scene for efficient documentation.
Therefore, go for a reputable organization to benefit from a seamless support system.
Find the Best Real Estate Tax Settlement Firms Via Xpeer
Whether you want to invest or increase your savings, managing your taxes efficiently can help you do both. Getting your returns filed on time is quite a nuisance.
Fortunately, Xpeer connects you to skilled real estate tax relief companies who file your returns accurately and reduce tax preparation problems while equally boosting tax-saving opportunities.
A knowledgeable real estate tax service provider understands your state laws and helps you avoid unexpected errors. They also minimize the chance of missed opportunities that may add to your savings and decrease your tax bills.