What Are Real Estate Taxes?

What Are Real Estate Taxes? Real Estate

When someone enters the real estate world, there is a lot they need to learn. Firstly, they should understand the major difference between real estate and property taxes. Secondly, what is the right way to calculate the taxes, even though it is a tough process?

Moving on, whether you are a property investor or a homeowner, this understanding also allows an individual to calculate the taxes of real estate accurately.

So many questions, right? Well, no need to worry as you will get the answer for all right here right now!

What Are Real Estate Taxes?

Real estate taxes are a term used to describe and evaluate the annual payments that a person is eligible to pay as the assessed and market value of their house. These taxes are determined by the municipality or the city or the state.

This value of the tax is determined by multiplying the market value of the home with a predetermined percentage. Market share is a highly volatile aspect of this equation because it is what makes the tax value high.

Property Taxes

Property taxes are also known as personal property tax. These include all the items that are movable or immovable assets. For instance, you have a car. That car is your personal property and you are paying tax on that property every year.

In addition to a car, some other things also fall under the category of property tax. Such as boats, planes, campers, RVs, and ATVs. The value of these items is also determined by the way your home tax is determined.

Major Differences Between Real Estate & Property Taxes

There are some things that make all the difference in real estate and property tax. First things first, the amount that you pay as a real estate tax is different from the property tax. Remember the fact that property taxes are not that hefty. They are less and not that much. Real estate tax on the other hand is huge and caters to high value of money.

Why Are Both Real Estate and Property Taxes Separate?

There is an easy way to explain this. As real estate and owned property are two different scenarios. Real estate taxes are considered to be high in monetary value because they are valued at a bigger price. Moreover, these owned properties also have legal binding and are a matter of state legislation.

Property taxes on the other hand are only on those things which a person owns to facilitate their everyday life. These are less flexible and volatile. Furthermore, this difference is easily highlighted during the tax season. Because property taxes come with deductions and real estate ones do not.

Real Estate Tax Calculation Process

The calculation process of a real estate tax heavily depends on three aspects:

  • Value of Property
  • Assessment Rate
  • Tax Rate

Keep in mind that the assessment rate and the tax rate are determined by the state and regional municipalities.

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All you have to do is consider these factors and multiply them together to get a picture of the real estate tax that you will be paying on your property. The formula is:

Real Estate Tax = Value of Property X Assessment Rate X Tax Rate

Property Tax Calculation Process

Here is how you can calculate the property tax:

  • Find Out the Value of the Subjected Property (The Assessed Value)
  • In Order to Determine the True Value, You Have to Add the Land Value With the Value of the Additional Improvements
  • Learn About the Local Tax Rate
  • Pile up All the Taxes
  • Then Multiply Them

In addition to all this, also take into account the factor that what is the current market value of your property.

For How Long Do You Have to Pay Property Taxes?

This one is highly synchronized with the way your local government tax schedule. Lenders are often seen rolling out property taxes with the mortgage money. If this is the same case then you have to pay the property tax on a monthly basis.

In other case scenarios, property taxes can also be collected on an annual basis. But the time it requires for the collection might vary greatly.

What Are the Actual Property Taxes Due?

This is determined by the location of your property. How much property tax you owe is dependent on the location. It is the main duty of the taxpayer to obtain the tax bill and ensure that all the payments are being made on time.

You can also stay in touch with the municipality websites to get a clear picture of the payments being made. They will also tell you all about the required installments and the installments infrastructure.

Few of the Real Estate Tax Tips for Business Owners

Well to go through the process of tax smoothly, it is essential that the people know about a few tips. The details are:


What is CPA? CPA stands for Certified Public Accountant. This is an individual who is trained, also known as a financial advisor, who helps individuals during the tax season.

Also, allow us to tell you that CPA offers diverse services. The services are investment acquisitions, planning, and much more.

So, if you are planning to enter the real estate world, you must hire a CPA. It is because they are experts and have knowledge and understanding about everything.

However, you need to pay a fee to the CPA. But allow us to tell you that the fee is not as high as you may think. Moreover, having them by your side is beneficial, as you are able to stay safe from problems. Also, able to file your taxes properly and correctly.

Do Consider IRAs

IRAs are a gateway to personalized real estate investments. In case you are not investing in an IRA you are in dangerous waters. It is more of an individual-centric account that allows a person to get a hold of their own investment decisions.

These sorts of investments can be both – tax-free and tax-deferred growth. But keep in mind, that the person who is initiating the tax will not have access to the money until and unless the person reaches retirement age.

Be Organized

In order for you to excel in any aspect of life, the key is to stay as organized as possible. If you wish to stay up-to-date with your tax payments so that there is no ticket issued in your name, you need to stay organized in your dealings.

Start with a properly documented chart and then move along the lines of a financial budget scheme. Trust us the more organized you are, the more it looks good for your credit score.

Do Reinvest in Another Passive Income

No one can deny the fact that investing in real estate is beneficial in multiple ways. However, if you are planning to be a part of the real estate world for a long time, make sure to focus on building your portfolio.

Now you might be thinking, how to do so? Allow us to tell you that all you have to do is reinvest your real estate profit into the real estate again. This is something that will allow you to generate good income for a long period of time. In other words, your children and even your children’s children will be able to benefit from this.

Furthermore, once you invest in multiple properties, you are able to stay safe from the inflation storm too. For example, if your properties are on rent, you can increase the rent as per the market. In this way, you will not get affected by inflation the ways others do get affected.

However, to achieve all this everything goes back to one thing and that is to pay taxes. You can learn about it by hiring an expert, as they will tell you about everything from time to time.

Know About Short-Term and Long-Term Investment

When the tax season is near make sure you divide your investments into two categories. Such as on one side there should be a short-term investment and on the other side, there should be long-term investments.

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Short-term investments are those that are with you for a year or less. However, long-term investments are those that you hold for a long period of time.

Now you must know the difference because it determines the tax rates.

Think Green

The modern era is all about making sustainable decisions that are long-term and healthy. That is why real estate and its many sections are also turning to be more environmentally sound and conscious. That is why proactive approaches are all the latest rage. People need to make environmentally sound decisions that help to formulate tax breaks that are valuable and provide value for money.

Go Digital

Trust us when we say this, but going paperless is the way to do it. If you are working on a tax payment, the most traditional way is to do it with a pile of disorganized paper trails that does more harm than tell.

There are a number of software that can help you to maintain your finances digitally. Try to get your hands on this software and then see the difference.

Some of the most commonly used tools for this purpose of bookkeeping are MileIQ. Evernote and Mint.

The End!

The above-provided guide is a lengthy document to provide you with all the essential things that one needs to understand regarding property tax and real estate tax. Learning about them is crucial for homeowners because it paves the way for a successful real estate journey that is free of malpractice and produces a good return on investments. These taxes not only make you a responsible citizen but also help you to manage your finances better.

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