To understand the definition of tangible personal property in real estate, it’s important to start by understanding what does not fall into this category: your house, and the land it’s sitting on. That can be confusing, since you can, of course, touch your walls and lay your hands on the grass in your backyard. However, tangible property isn’t as simple as what is physically within your reach.
What is tangible personal property (TPP)?
In addition to being able to physically touch it, the legal definition of tangible personal property comes with a key distinction: It can be moved from one location to another. It has weight, and it can be measured, too. Take a look around your house right now, and just about everything will fall under the classification of tangible personal property. Your couch, your shoes, your blender, your television — these are all tangible personal property.
Tangible personal property types
So what are some other examples of tangible personal property? Here’s a rundown of some of the items that fit into the definition:
- Artwork
- Furniture
- Vehicles
- Books
- Musical equipment
- Kitchen appliances
- Electronics
- Clothes
- Bedding
- Jewelry
How tangible personal property impacts taxes
When you receive a bill for your property taxes, you likely don’t have to think too much about how your tangible personal property impacts what you owe. That’s because, in most cases, the government isn’t going to tax you for your desk. After all, you already paid sales tax to buy it. However, if you’re using that desk as part of a small business or in your role as a freelance worker, it may be a different story. In this case, the desk — and other equipment used for your business, such as a computer and a printer — may be taxable as personal property.
Personal property extends outside of what’s in your actual property, too. For example, if you use your car regularly for your business, that may be considered taxable, as well. However, it won’t be valued at the same price you paid for it, due to depreciation. It’s important to note that the fair market value of the property plays a role in whether it will actually need to be reported on your tax filings. In Utah, for example, individuals are exempt from the TPP reporting requirement if the property is worth less than $25,000.
Some states, though, do not include tangible property in their taxation. “There are five states that do not charge sales tax on tangible personal property,” says Lisa Greene-Lewis, a CPA and tax expert at TurboTax. “Those states are Alaska, Delaware, Montana, New Hampshire and Oregon, although localities in Alaska may impose taxes on tangible property.”
Frequently asked questions
Real property is real estate. Tangible personal property is located inside real property. So, your house, your driveway, your tool shed, your backyard garden — these are all considered real property.
Let’s say you are a songwriter who has written a chart-topping hit. The piano that you own, which you utilized to write the song, is considered tangible personal property. You can touch it, move it and play it. The copyright for the song, though, is consideredintangible personal property.As another example, let’s say you are a clothing designer. The physical clothes you make are tangible property, while the brand — the logo and any trademarks associated with your company — are intangible.
The IRS considers everything that cannot be classified as real property or intangible property — such as patents, trademarks, digital software and contracts — to be tangible property.
No. Your bank accounts fall under intangible personal property.
Bottom line
Tax laws can be very complex. As you think about what you own that falls under the tangible personal property definition, you may want to talk to a tax professional to understand whether any of those items will impact how much you owe the government. And while you’re thinking about tangible property taxes, be sure to also focus on ways to lower your property tax bill, too.
Certainly! The concept of tangible personal property (TPP) within real estate is multifaceted. Tangible personal property constitutes movable items that possess physical attributes such as weight and measure, differentiating them from the immovable fixtures of real property. I can offer insights into each concept touched upon in the provided article.
Real Property vs. Tangible Personal Property
Real Property: Refers to the land and structures permanently affixed to it, like your house, driveway, or tool shed. These elements are not considered tangible personal property due to their immovable nature.
Tangible Personal Property: Encompasses items that can be physically touched, measured, and relocated. Your everyday household items like furniture, electronics, vehicles, clothes, and jewelry fall into this category.
Tax Implications of Tangible Personal Property
Taxation Considerations: Tangible personal property typically doesn't directly impact property taxes for homeowners. However, if these items are used for business purposes, they might become taxable. For instance, equipment utilized for a business or freelance work, like desks, computers, or vehicles, could be subject to taxation.
Fair Market Value and Reporting: The fair market value of tangible personal property determines whether it needs to be reported for tax filings. In some states, individuals are exempt from reporting if the property's worth falls below a specific threshold.
State Taxation Variations: Taxation on tangible personal property differs among states. Some states, like Alaska, Delaware, Montana, New Hampshire, and Oregon, don’t impose sales tax on these items. Yet, certain localities within Alaska may levy taxes on tangible property.
Understanding Intangible Property
Intangible Property: Differs from tangible personal property and includes assets like copyrights, trademarks, patents, digital software, and contracts. Bank accounts are also categorized as intangible personal property.
Differentiation Examples: The article provides examples to distinguish between tangible and intangible property, such as a songwriter's piano (tangible) versus the copyright for a song (intangible). Similarly, in the case of a clothing designer, the physical clothes represent tangible property, while the brand, logo, and associated trademarks are considered intangible.
Seeking Professional Guidance
Complexity of Tax Laws: Tax laws regarding tangible personal property can be intricate. Seeking advice from a tax professional to comprehend how these items might impact tax obligations is advisable. Additionally, exploring methods to potentially reduce property tax bills is a prudent strategy.
The delineation between real property, tangible personal property, and intangible property plays a vital role in understanding tax implications and legal distinctions within real estate.
