Tax season is here–and it’s as vicious as ever. With personal property tax issues on the rise knowing what to do hard
Now that you’re on your own, that means you are responsible for taking care of your taxes on time. A part of this involves figuring out what you need to report when you’re filing.
Two major sources of confusion include the distinctions between real estate tax and personal property tax. Taking the time to understand each can help you avoid errors when you’re filing.
If this is your first time filing an itemized deduction, it’s important to know how and when to go about reporting these taxes. But before we get into the terms at hand, here is some background on whether or not you qualify for an itemized deduction.
What Are Standard and Itemized Deductions?
Understanding the differences between standard and itemized deductions can help you decide whether or not you need to include your property taxes when filing your taxes.
Standard deductions offer base amount that is dependent on your marital status. These kinds of deductions are recommended for individuals with a simpler tax footprint.
In order to receive deductions for real estate and property tax, you will have to file an itemized deduction. These kinds of deductions offer a more detailed glance at the taxes you pay.
But when should you file an itemized deduction? The decision is based solely on what your current tax situation is like. If you qualify for an itemized deduction, it will help you receive more than the standard deduction.
Understanding the distinction between standard and itemized deductions is important when it comes to property taxes. Knowing when to file can save you from making mistakes on your return. Refusing to file at all can have even more consequences for you and your property.
Now that you have an idea of how to go file an itemized deduction, we can move on to understanding the differences between real estate and personal property tax.
What Is Real Estate Tax?
Essentially, real estate taxes refer to property that’s fixed in place. It also covers any modifications to this land, like buildings.
The tax itself is dependent on a couple factors. The first involves the fair market value (FMV) of your property. This is determined by an appraisal authority who will calculate the worth of your property and its improvements.
The other piece to determining the tax is your geographical locations. Laws regarding real estate tax may vary depending on where you are. In some cases, the real estate tax may be determined by the most recent sale price of the property.
Since real estate taxes are deductible, they can be beneficial to you come filing season. However, you need be mindful of whether or not your home qualifies for a tax deduction.
Do I Qualify for Real Estate Tax Deductions?
If you paid a real estate tax of some kind, there is a chance you may qualify for a tax deduction. However, it will depend on the kind of property you purchased. Deductions apply to:
- Your primary home
- Vacation homes
- Property owned outside of the country
However, there are also several cases where you don’t qualify for deductions. The first of these instances include property you don’t own.
If you’re renting a house or an apartment, you don’t qualify for a tax deduction. You must be the legal owner of the property in order to be considered.
Business properties are another case in which you won’t qualify for a deduction. While business properties may not count towards a deduction, you can claim them as a business expense.
Another situation where you won’t qualify for a tax deduction is any improvement or service that is not directly related to the property’s value. An example of an improvement could be sidewalks or roads. Services include trash collection or taxes that benefit the community like library taxes.
Making sure you understand whether you qualify for these kinds of deductions can save you a lot of headaches when filing. While it may be beneficial in some cases, it ultimately depends on how your itemized deduction compares to the standard one.
Now that you have a firm understanding on real estate tax, let’s take a look at personal property tax.
What Is Personal Property Tax?
While real estate tax was concerned with fixed properties, personal property tax refers to mobile objects. Items like cars, boats, and RVs are all considered personal property.
Much like real estate taxes, the taxes themselves are dependent on the value of the property. This value is calculated by an appraisal authority and enforced annually.
Typically, these taxes are a percentage of the property’s value. However, this percentage can vary from state to state.
When it comes to deduction, taxes on personal property come with their own set of guidelines. Though similar to real estate tax, personal property tax is unique in its own way.
Do I Qualify for Personal Property Tax Deductions?
Deductions on personal property rely on how the property’s tax is created and enforced. If it misses any of the criteria, it doesn’t qualify.
The guidelines used to decide whether a property tax is deductible are:
- The tax is based on the property’s value.
- The tax is levied annually.
- The tax is levied on personal property.
An example of this kind of tax could be a vehicle registration. Registrations are often based on the value of the property and are imposed annually.
Claiming deductions on your personal property can help you pay less when it comes time to file your taxes. Doing what you can to avoid owing more than you can afford might take time, but it’s worth it in the end.
Though navigating real estate and property taxes may be tricky, understanding them is important knowledge for a home-owner. Keeping track of these taxes can be useful for managing your future finances.
While you may have a grasp on property taxes, there’s still plenty to learn. The complicated nature of taxes can make them scary.
Whether you’re just preparing for the worst or need guidance, check out some of our resources for coping with tax debt.