A Complete Guide On Real Property Tax Law

By Author: Nick
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Here’s everything you need to know about real property, property tax, and real property tax law.

The tax paid on property owned by an individual or a legal entity, such as a corporation, is property tax. Land or everything else that is permanently attached to the land is called real property. The property tax levied on real property is known as real property tax law.

Let’s get into more depth and understand the meaning of real property and the tax levied on real property.
What is Real Property?

As per the real property tax law, real property is the land, everything that is a permanent part of the land, and the ownership rights, which includes the right to possess, sell, lease, and enjoy the land.

Classification of real property can get done according to the general use of the property as residential, commercial, industrial, agricultural, or special purpose.

If individuals wish to sell their home or real property, they should clearly understand their rights in the property. If they do not have the right to sell the property, and however go ahead and sell it, such a deal would not ...
... be considered legal.
Understanding Real Property
It’s helpful to start with land and real estate to understand real property and real property tax law. As per the law, the land gets defined as the earth’s surface, the surface extends downward to the center of the earth and goes to infinity in the upward direction, this also includes everything that is a permanent part of the land attached by nature, such as boulders, trees, and water.

Apart from the above, land also includes the minerals found on the earth’s surface and the airspace above land.

On the other hand, real estate gets defined as the land at, above, and below the earth’s surface, including a land’s permanent part, whether natural or artificial.

So while land includes only those components permanently attached to the land by nature, real estate has everything attached to the land by nature and by artificial means, like streets, utilities, fences, buildings, sewer, etc., that are permanent artificial improvements to the land.

While real property, on the other hand, refers to the interests, benefits, and rights inherent in the ownership of real estate. Real property’s broader term includes the physical land, everything that is a permanent part of the land, whether artificial or natural, including all the rights of ownership, the right to possess, sell, lease, and enjoy the land.
Estates in Real Property

“Estate in land” is the term used for the amount and kind of interest a person has in real property. Estates in the land get broken down into two major classifications:

Freehold estates
Nonfreehold estates

Let’s learn about both classifications of estates in land separately.
Freehold Estates

These types of estates in land involve ownership. Freehold estates have an indefinite duration and have the potential to last for a lifetime or forever. Common examples of freehold estates include:
Life estate:
This type of estate is limited in duration, as they last till the owner’s life or to the lives of some other person(s) designated. A life estate is not considered an estate of inheritance.

Fee simple:

The estate holder in fee simple is entitled to all rights in the property. Fee simple is the highest type of interest in real estate as per the law. Fee simple estates are of unlimited duration, and the estate passes to the owner’s heirs when the owner dies, unlike life estate. Fee simple is considered an estate of inheritance.
Nonfreehold estates
These types of estates involve leases. Nonfreehold estates are not inheritable and exist “without seisin” (without ownership). Nonfreehold estates, also known as leasehold estates, are created through leases and rental agreements in written and oral forms. Common examples of the non-freehold estate are:
Tenancy for years:

This estate gets created by a lease that mentions a definite beginning and ending period in the lease. The lease of tenancy for years terminates automatically at the specified end date in the lease. Tenancy for years is also called estate for years.
Tenancy at Sufferance:

This type of tenancy is the lowest form of estate ever known in the law. The tenancy at sufferance exists indirectly due to circumstance, which means it never gets created deliberately.

Suppose a person who used to have a legal right to the property remains on the property after their legal right has expired and without the owner’s consent. In such a situation, tenancy at sufferance takes place.
Tenancy at will

The tenancy that can be terminated at any time by the owner or tenant is a tenancy at will. Tenancy at will is also called estate at will.
Tenancy from period to period

Tenancy from period to period exists when the tenancy is for a definite initial time. However, it is automatically renewable for an indefinite period unless the owner or tenant terminates it by furnishing a prior notice. Tenancy from period to period is also called estate from year to year.

Real Property vs. Personal Property

The law makes a clear distinction between real property and personal property. Real property is the one that is fixed at a place and cannot get moved from one place to another (immovable). Real property includes the land, everything permanently attached to the land, and the rights that come with the land.

Visit getlegal.com to know more about Real Property tax law vs. Personal Property tax law.

On the other hand, personal property law involves movable property. The personal property gets defined as everything that is not real property. Personal property includes clothes, furniture, boats, motorcycles, and other portable items that aren’t attached to the land and real estate.

Real Property vs. Real Estate

The land above and below the earth’s surface is considered real estate. Real estate includes everything permanently attached to the land, whether natural or artificial.
Everything included in real estate is real property. Real property consists of ownership rights, including the right to possess, sell, lease, and enjoy the land.

What is Property Tax?

Property tax is a tax paid to the government by an individual or an entity for the country’s property. Generally, property tax is a real estate ad-valorem tax. This tax is considered a regressive tax.

The province’s local government calculates the property tax on the property location and gets paid by the property owner. The tax amount usually gets determined on the value of the owned property, including land. However, many jurisdictions in the country also tax tangible property owned by an individual or an entity, such as cars and boats.

The local government uses the assessed tax to fund water and sewer improvements and provide law enforcement, education, highway construction, libraries, and other community services. However, it is essential to note that the Deed of reconveyance does not interact with property taxes.

Understanding Property Tax

Property tax rates and the type of property tax law applied to properties such as real property tax law, rental property tax law, personal property tax law, etc., vary by jurisdiction. It is essential to scrutinize the applicable tax law when purchasing a property.

In most Organization for Economic Co-operation and Development (OECD) countries, taxes on immovable property represent a low proportion of federal revenue than value-added and income taxes. However, the tax rates in the United States are considerably higher when compared to many European countries.

In developed countries, many empiricists and pundits have called for increased property taxes in countries with developed economies. The argument put forth by the states that the predictability and market-correcting character of the tax encourages stability and proper development of the real estate.

How does Property Tax Work?

The amount owed by the owners as property tax gets determined by multiplying the property’s tax rate by the current market value of the property in question. Most taxing authorities recalculate the tax rates in the country. Almost all property taxes are levied on real property and get governed by real property tax law.

Property owners are ultimately subject to the tax municipal government’s rates and real property tax law. A tax assessor will get hired by the municipality, who would assess the local property. The tax assessor in some areas may be an elected official.

Based on current fair market values, the assessor will assign property taxes to owners. The value assigned as property taxes then becomes the assessed value of the home.

The payment schedule of property taxes as per real property tax law varies from locality to locality. There are mechanisms in almost all local property tax codes by which the owner can discuss the tax rate applicable to them with the assessor or formally contest the rate.

The taxing authority may assign a lien against the property if the property owner fails to pay the taxes as prescribed by the assessee as per real property tax law. Before purchasing any property, the buyers should do a full review of outstanding liens.

Click here to know more about property taxes and real property tax law on getlegal.com.
Different types of real estate property taxes
Real property tax

The real property tax is collected by the county and distributed amongst various taxing agencies on local levels. The county assessor determines the value of the tax property and the taxpayer (individual or entity) as per the real property tax law. The assessor then gives the information to the county tax collector, the Audit-controller.

The audit controller then calculates the tax by multiplying the property’s taxable value by the country’s applicable tax rate. The bill then gets mailed by the tax collector to the taxpayer and collects the amount due.
The maximum tax rate charged per real property tax law is generally equal to one percent of the property’s assessed value. The tax percent increase annually can be no more than two percent greater than the previous year’s tax bill.

The change of ownership of the property calls for a reappraisal.
Parcel tax

What does the government require more revenue to fund police and fire services or a new school building? In such situations, the district may hold a parcel tax election conducted for taxpayers to determine whether to impose an additional special tax on real estate owners, called a parcel tax. For a parcel to get imposed, at least a two-thirds voter approval is required.

Property-related fees

Property-related fees are another special tax imposed on a parcel or an individual. Most jurisdictions have limited these to fees that the property owner has to pay and cannot get avoided without selling the property. These include fees for water, sewer, refuse collection, groundwater treatment, etc. Just like parcel tax, voter approval is necessary for property-related fees too.

Documentary transfer tax

At a rate of no more than 55 cents per $500 of the property’s value, the counties may impose a documentary transfer tax. Depending on the mutual agreement between the buyer and seller, either of them can pay this tax. Documentary transfer tax is paid in collection with the transfer of title to real property and is a part of real property tax law.

Property transfer tax (for charter cities)

Up to one-half of the amount, cities may tack on an additional “city transfer tax” similar to the county’s document transfer tax. Majority voter approval is necessary to impose or increase property transfer tax.

You can know more about types of real estate property tax on getlegal.com.

To conclude –

Real property tax law can be tricky, but the owners of real property can find great resources of tax information online, through tax preparation and accounting services, at the public library, etc. It is also good to seek the legal help of an attorney who has complete knowledge of real property tax law before buying or selling any property of yours. The attorney can help you understand the law and guide you in tax-paying as required by the law.
https://www.getlegal.com/legal-info-center/tax-law/property-tax-law/