If you are new to the world of real estate, you might be a bit confused by all of the taxes that get assessed. To many people, the words ‘character taxes’ and ‘real estate taxes’ sound like they are the same, but there are some meaningful differences. Let’s take a look at them.
Real estate taxes are taxes based on the character’s assessed value. They are assessed on privately owned similarities and funds are collected by local governments. Real estate taxes are the ones we often hear about that fund schools and pay for road repairs.
character taxes have two sub-categories. There are certainly real character taxes that are real estate taxes, but there are also personal character taxes. Think of real character as something that cannot be moved. These are things like the house, an external garage, a storage building, or a barn.
Personal character is defined as things that can be moved, like furniture. These taxes are sometimes called excise taxes. Your car is also personal character. Believe it or not, but that licensing fee you pay for your car is a kind of personal character tax. If you have a business that repairs items or sells merchandise, that inventory is personal character. In many situations, you are exempt from taxes on the first $50,000 or $100,000 of inventory, depending on your state.
If you own an RV, this is counted as personal character because it can be moved, already though you might be living in one complete time. If it is sitting on land you own, you might have to pay real estate taxes on that land, but not in combination with the RV.
So what is the assessed value that these taxes are based on? Each local government has a department that looks at what the value of a character really is. They look at the structure and the land value itself. Sometimes they calculate these values separately and sometimes they are looked at together. The assessment rate is a lower percentage of the assessed value. For many areas, the assessment rate is 70% – 80%, which then reduces the value of the house, and consequently the amount that the tax rate is calculated against.
It should be noted that HOA or condo association fees are not the same as real estate or character taxes. Those fees go directly to the association to cover costs of shared area repairs and maintenance.
Personal character taxes are assessed as a percentage of the value of the item. Each state and county will have their own regulations on how they calculate personal character taxes. Also, each state in addition as the federal government allows for a tax deduction on personal income tax forms for real estate taxes that have been paid in a given year.
There are also exemptions that certain homeowners might qualify for that help reduce the tax burden. These exemptions are often for wounded military, the disabled, and the elderly.
Hopefully this has helped clear up the differences between character taxes and real estate taxes. Though they sometimes do overlap, they are also quite different. It just depends on what the item is that is being taxed.