by Nick KeslingOctober 29, 2024

Real vs. Personal Property Tax Explained

Property tax is fraught with complexities, particularly in distinguishing between real property tax and personal property tax. While real property tax is based on the assessed value of buildings, personal property tax encompasses machinery, equipment, furniture, and other movable assets. Addressing both types of property tax is crucial for comprehensive tax planning.

Key Areas of Focus

Expanding the focus beyond real property tax is essential. Real property tax is straightforward, but personal property tax often gets overlooked. This type of tax includes any removable assets and can lead to significant savings when properly assessed and managed.

Industries Affected by Property Tax

Asset-heavy industries like manufacturing and healthcare can benefit considerably from reviewing their personal property tax assessments. Manufacturing often sees overvalued personal property because initial assessments may not fully account for wear and tear on machinery. Similarly, hospitals frequently deal with ghost assets—disposed items still appearing on records. Correcting these assessments can result in substantial tax savings.

The Appeals Process

The time and effort involved in the appeals process often concern clients. Efficient procedures can minimize client involvement while maximizing outcomes. For personal property reviews, only the previous year’s fixed asset and personal property returns are required. Depending on the property’s value, an onsite inspection might be necessary. Real property assessments start with basic details such as the property address and any available appraisals.

Misconceptions in Real Property Tax

A common misconception is the fear that appealing an assessment could increase property value. This scenario is extremely rare and usually only occurs due to significant errors in the assessment. Understanding the unique deadlines for each county is crucial, as appeal deadlines can vary significantly. Generally, the process takes about three to four months.

Strategies for Successful Appeals

Three primary methods are employed to justify lowering an assessment:

  1. Cost Method: Evaluating the replacement costs of the property.
  2. Market Approach: Comparing sales of similar properties in the area.
  3. Income Approach: Assessing the revenue generated by the property, including rent, vacancies, and maintenance costs.

Client Benefits and Contingency Fees

A successful appeal typically results in a reduction in property tax assessments, averaging between 15-25%, with some cases seeing reductions as high as 50%. Out-of-pocket costs are minimal, usually limited to filing fees or necessary appraisals, with clients being consulted before any significant expenses are incurred.

Navigating Administrative Challenges and Deadlines

Understanding and adhering to administrative requirements and deadlines are critical for successful appeals. These requirements vary significantly between counties, making professional expertise invaluable. Missing minute administrative details can jeopardize the success of an appeal, emphasizing the need for a thorough knowledge of each jurisdiction’s rules.

A well-handled property tax appeal process can have a profound impact. Leveraging professional expertise can secure considerable tax savings, driving financial benefits for clients. Staying informed and proactive in tax assessments and appeals is essential.

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    Nick Kesling

Nick Kesling is a Senior Tax Consultant in McGuire Sponsel’s Property Tax practice. He helps clients identify the potential factors of overpaying property tax bills and aids in preparing appeals to reduce tax liability. Nick is well-versed in nuances and requirements for property taxes throughout the U.S.

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