Real Estate Taxes vs. Property Taxes: What’s the Difference?

When tax season rolls around, property owners might hear terms like “real estate taxes” and “property taxes” used interchangeably. While they may sound similar, there are important distinctions that impact how these taxes are assessed, calculated, and paid. Understanding these differences is key to effective real estate tax planning and can help you avoid unnecessary confusion as you manage your finances.

What Are Real Estate Taxes?

Real estate taxes specifically refer to taxes on land and buildings that are permanently attached to the land. These taxes are assessed on the value of the property, which includes both the land and any structures on it, such as homes, commercial buildings, or other fixed structures. Local governments, including cities, counties, and municipalities, assess real estate taxes based on the property’s assessed value. Real estate taxes serve as a primary source of revenue for local governments, funding essential services such as schools, police and fire departments, and public infrastructure. Because they’re tied to the market value of property, real estate taxes can vary widely depending on the location and property type.

Key Points:

• Real estate taxes apply to land and permanent structures on it.
• These taxes are determined based on the property’s assessed market value.
• Local governments use real estate tax revenue for public services and infrastructure.

What are Property Taxes?

Property taxes are a broader category that can include both real estate taxes and other forms of taxation on personal property. In addition to real estate, some jurisdictions tax personal property, such as vehicles, boats, or equipment, which fall under property taxes. This broader scope can cause confusion, as not all property taxes relate to real estate. For instance, in some states, business owners might pay property taxes on both real estate (the physical location of their business) and on certain business assets, such as machinery or vehicles. Homeowners, on the other hand, are typically only liable for real estate taxes unless they own taxable personal property.

Key Points:

• Property taxes can cover both real estate and certain types of personal property.
• Items like vehicles, boats, and machinery may be subject to property taxes in some jurisdictions.
• Business owners may encounter property taxes on business assets in addition to real estate taxes.

How Are Real Estate and Property Taxes Assessed?

Real estate taxes are generally calculated based on an annual or biannual assessment of the property’s market value. This assessment reflects the fair market value of the property, and local tax authorities apply a rate (known as the mill rate) to this value to determine the tax amount owed. For property taxes on personal items, the assessment process can vary widely. Vehicles, for example, are often assessed based on their make, model, and year. For businesses, taxable personal property may require an annual declaration of asset values.

Common Misconceptions and Considerations

The terms “real estate tax” and “property tax” are often used interchangeably, leading to common misconceptions:

Misconception #1

Property tax only applies to real estate. Reality: Property tax is a general term, covering both real estate and, in some cases, personal property.

Misconception #2

Property taxes are the same across all locations. Reality: Tax rates and what’s considered taxable property vary significantly between states and municipalities. These nuances are important for individuals and businesses alike. Homeowners should understand that their “property tax” bill typically includes only real estate taxes, while business owners may need to account for personal property taxes on specific business assets.

What These Differences Mean for You

Understanding the differences between real estate and property taxes helps you plan for tax payments accurately and take advantage of potential deductions. If you’re a homeowner, your primary focus is likely real estate taxes. However, if you own a real estate investment business or specific high-value assets, you might also be liable for additional property taxes. For Ohio residents, property tax assessments and rates can vary by county, and local ordinances determine how certain assets are taxed. Consulting with a knowledgeable real estate CPA who understands Ohio’s tax regulations can provide clarity and ensure that you remain compliant while maximizing potential savings.

Final Thoughts

Whether you’re a homeowner or business owner, understanding the nuances of real estate and property taxes is essential to avoid surprises. Clear knowledge of what is being taxed and how rates are determined allows you to manage your budget and prepare for any tax liabilities confidently. The experienced team at Hogan CPA Financial Services can help you navigate Ohio’s tax landscape and implement a tax strategy tailored to your unique needs. Contact us today to make informed, proactive choices about your tax obligations.