Real estate taxes vs. property taxes: What’s the difference?

Becoming a homeowner means taking on new responsibilities, like paying additional taxes and budgeting for your mortgage payments. One aspect of homeownership that can get a little confusing is seeing the terms “real estate taxes” and “property taxes” used interchangeably. Are real estate taxes the same as property taxes?

We'll outline the key differences between real estate taxes and property taxes, so you can become a more confident homeowner and know what you can anticipate when taxes are due.

Are real estate taxes the same as property taxes?

Real estate taxes and property taxes are often used interchangeably, but they don’t always refer to the same thing. Real estate taxes are taxes on real property, such as land and any structures, like a house. When someone refers to paying “property taxes” on their home, they’re usually referring to real estate taxes.

Property taxes can include both “real estate taxes” and “personal property taxes.” Personal property taxes are a different tax on personal or business property, such as a car, boat, RV, or business equipment.

One reason these terms are often confused is that many states don’t have a personal property tax, so they use “property taxes” as a way to describe “real estate taxes.” Some places may even call them “real property taxes.” Regardless of where you live, it’s important to clarify what terminology you’ll encounter when paying these taxes.

What are real estate taxes?

Real estate taxes specifically refer to the taxes on “real property,” meaning the land and structures like your home. As mentioned above, it’s common for people to refer to these taxes as “property taxes.”

Local governments levy these taxes to fund local services and programs, like police and fire departments, public schools, road construction, parks and recreation, and community improvements.

Tax rates vary widely by city, county, and state, so it’s important to know what your area charges. The amount you owe depends on your home’s value, any additional features or structures on the property, and the tax rate itself.

Most of the time, real estate taxes are paid as part of your monthly mortgage payment. The funds are typically placed in an escrow account and automatically paid by the due date. You may be able to pay them separately, but many lenders require that you pay real estate taxes as part of your mortgage payment.

What are property taxes?

Property taxes are often used synonymously with real estate taxes, but they’re not always interchangeable terms. Real estate taxes are a type of property tax on real property. Property taxes can also include “personal property taxes.”

Personal property taxes are levied on tangible personal property (TPP), such as vehicles and boats, and business property, like machinery and equipment. Not all states tax personal property, but some do.

But how do property taxes work, on a state level? Some states, such as Washington and Oregon, have personal property taxes on business-related items. Other states, like Missouri, have personal property taxes on items like personal vehicles, boats, and motorcycles. Be sure to research your state’s tax policy or speak with a tax professional to understand what you’re expected to pay.

Real estate vs. personal property tax: Similarities and differences

As we covered above, real estate taxes are a tax on real property, while personal property taxes can cover individual or business property. Let’s look at a side-by-side comparison of these taxes:

How real estate taxes are calculated

Real estate taxes are generally charged as a percentage of a property’s assessed value and the tax rate in your area. Properties are assessed, usually annually, to determine their value, so it’s important to note that taxes typically change each year based on the results of the property tax assessment.

Tax rates are typically calculated using a mill rate or millage. Each mill is paid against every $1,000 of your home’s assessed value. If your city approves a tax rate of 1 mill, then you’d pay $1 for every $1,000 that your home is worth.

For example, the average property tax rate in New Jersey is around 2.23%, though rates vary by municipality.

Tax rate x assessed value = real estate tax

2.23% x $500,000 = $11,150

In the above example, you’d owe $11,150 in taxes on a $500,000 home in New Jersey. Keep in mind that local governments levy taxes, so this number will likely change depending on the city or county you live in.

The bottom line

While real estate taxes and property taxes are often used interchangeably, if you’re a homeowner paying property taxes, it’s likely that it’s a real estate tax. Taxes can feel overwhelming, but knowing that your “property taxes” are most likely just “real estate taxes” can help you become a more confident homeowner.

If you’re considering buying a home this year, you can start your mortgage application with Rocket Mortgage^®.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

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