Real Estate and Personal Property Tax: What’s the Difference?

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

Whether you will pay real estate tax, personal property tax, or both is a matter of your property’s mobility:

Real estate tax (also called “real property tax”) applies to property that is immovable, such as your house, a building, or land. If you own a home, you pay this tax through your monthly mortgage payment or through direct payment to your tax assessor.

Personal property tax applies to movable property – an RV, boat, vehicle, or plane, among other assets.

Real estate and personal property taxes are based on the type of property you own and usually its assessed value.

Deducting Real Estate Taxes: Quick Facts

Real estate taxes based on the assessed value of the real estate imposed by a government office and for general public benefit are deductible only by the taxpayers who own it and pays it.

To get a tax benefit for those real estate taxes, you must itemize instead of using the standard deduction.

You can deduct the real estate taxes you pay on your property in the year you pay them if they have been assessed, which is generally when the taxpayer becomes liable for the property tax imposed (i.e., presumably, when the notification of the assessment is sent to you). For example, you may receive a bill due in January 2018 for an amount that assessed in 2017 and you decide to prepay in December 2017. This means you’ll deduct the prepaid amount on your 2017 return.

If you own a home, your mortgage lender may pay your real estate taxes from an escrow account. If so, they’ll send you a Form 1098. This form will report any real estate taxes you paid. You should receive your 1098 by Jan. 31, 2018. If you don’t, contact your mortgage lender.

Statements required by the Consumer Financial Protection Bureau (CFPB) also report real estate taxes. When you buy or sell property, you’ll receive a Closing Disclosure statement. The statement lists the taxes paid by both the buyer and seller.  These are usually deducted based on how many days each owned the property during the year.

If your condo or homeowner’s association charges you a special fee, you can’t deduct it as real estate tax; these fees are considered association fees. However, you can deduct any amount of your fee that covers real property taxes. If the association sends you a statement, it should tell you the amount of real property tax the fees covered.

Deducting Personal Property Taxes: Quick Facts

To deduct personal property taxes, all of these must apply:

  • The tax is imposed on personal property.
  • The tax must be ad valorem, meaning it’s mostly in proportion to the value of the personal property.
  • The tax is imposed on an annual basis, even if it’s collected more or less than once a year.
  • You must claim these as itemized deductions on Schedule A:
    • Real estate taxes (Line 6)
    • Personal property taxes (Line 7)

If you have a home office or a rental or business, these taxes are deducted elsewhere on your return.

Implications Under the New Tax Cuts & Jobs Act

For years 2018 through 2025, the recently passed Tax Cut & Jobs Act limits the combined deduction for real property taxes, personal property taxes,  state and local income taxes, and general sales taxes (if elected), for any year to $10,000 ($5,000 for marrieds filing separately). The Act essentially doubled the standard deduction for all individuals. As such, many individuals will have a larger tax benefit by using the standard deduction rather than itemizing their deductions. Individuals who utilize the standard deduction are not allowed to also deduct the taxes described above.

These new rules will not apply to your 2017 tax return (i.e., returns covering the 2017 calendar year that are filed in 2018).

Which Taxes Can I Deduct?

The experts at H&R Block can look at your personal situation and help you decide if you’re eligible to deduct real estate taxes, personal property taxes or both. And if you’d rather file your taxes yourself, know you are still backed by our 100% accuracy and maximum refund guarantees. In an office or online, don’t just get your taxes done. Get your taxes won with H&R Block.

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