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Blogs

5 Differences between Real Property and Business Personal Property When It Comes to Property Taxes

16th May 2014

Personal property can be defined as property that is tangible but is not true property. In the state of Texas, the general basis for differentiating between personal property and true property is whether or not it is attached to the true property.

Take a refrigerator for example. A refrigerator is not generally considered to be attached to true property. That said, vinyl tile, carpet, plumbing fixtures, light fixtures, etc. would be considered as being attached to the property. Personal property that is not used in the generation of income is not allowed to be taxed in Texas.

Business Personal Property Defined

When talking about business personal property in Texas, it can be defined as any type of tangible personal property that is utilized to generate any form of income. This type of property is eligible to be taxed at the same rate as true real estate property. Some more common examples of this type of property are things like cars, trucks, heavy equipment, office furniture, office equipment and inventory.

Differences

  • The main difference between the two types of property is that one type is used to generate income while the other is not.
  • Business personal property are only the tangible things that are used for business purposes or are used to generate income. So things like flights, lunches for or with clients, bosses etc. are not really tangible things even though they are used for business purposes. This means that they are not business personal property. Alternatively, things like the cell phone that you use for business purposes, the laptop that you use for your drop shipping online store or your freelance job, the vehicle that gets you to job sites…all of these things can be claimed as business personal properties. These things are taxable at the same rate as real property. The same things, when used only for personal use, they cannot be taxed at all in the state of Texas.
  • Business personal property are things that can be moved and are not attached to real property. Real property is the land and what is on it. For example, if I have 20 acres of land and I build a house or other structure on it and I park my car on the land, the land and the structure are considered to be real property. The car, on the other hand, is not because it can be taken off the land.
  • Real property can be used for personal use or business use and it will still be taxed at the same rate either way. Business personal property is taxed at the same rate as real property. The difference here is that the business personal property can only be taxed IF it is tangible AND used to generate income while real property is taxed either way.
  • Business personal property can actually be used to bring your taxes down even though they are taxable. Real property can't really achieve that without you having to jump through a lot of hoops to get there.

How to Reduce your Texas Property Tax

There are firms that will be able to simplify this for you and even take care of it for you. One of these firms, O'Connor & Associates, filed more than 164,000 of these protests in 2009 and managed to cut the taxes of those clients by more than $88.5 million. With statistics like that, the best way to reduce your property tax in Texas is by calling these guys.

What can Cost Segregation Do for You?

Cost segregation is a tool that can actually reduce the federal income taxes for people or companies that own multi-family real estate or even just commercial real estate. This tool accomplishes this by correctly calculating the depreciation of the real estate in question.

Increasing the depreciation actually improves the tax benefits for multi-family and commercial real estate by affecting the tax reduction in addition to deferring the federal income tax payments.

Cost segregation in Texas is actually a conservative approach that was designed by the Internal Revenue Service and is implemented by firms such as O'Connor and Associates in order to update the depreciation schedules for things like commercial property as well as for the correct component allocation, which will reduce the amount of your federal income taxes in the end.

Firms that utilize appraisers for this service can add a considerable amount of cost efficiency to this process. When compared to firms that do not have their own appraisers on staff can charge up to twice the amount as what is charged by firms that do have appraisers on staff such as O'Connor & Associates.

Contact O'Connor & Associates today for more information on the difference between real property and business personal property!


Posted in: Business Personal Property Valuation
Keywords: Cost segragation Houston, Texas Property tax, business personal property in Texas

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