Real Property VS. Personal Property: Why It Matters

Discussing property documents

Distinguishing between real and personal property is applicable in various contexts. All properties fall into these two categories. Deciding whether you have real or personal property depends on certain factors. Here’s why it’s important to differentiate between them.

 

Real Property

A real property describes the land and things attached to it. Though steel wood and other building materials aren’t land, they become real property when a structure is constructed on that land. Trees and plants that grow naturally also become a part of the real property. However, plants that require regular maintenance and cultivation may not be treated as a part of the real property.

 

Personal Property

Personal property can be further divided into two categories – chattels and intangibles. Chattels cover all types of private property. It is also referred to as tangible belongings such as clothing or purse. At times chattels attached to land can become a part of the real property, also known as fixtures.

On the other hand, intangible are types of property that one can’t see or touch. This category addresses the legal rights to the property and things not to do. Intangibles can be franchises, licenses, bank accounts, or investments such as bonds or stocks.

 

Know the Differences

Personal property can be anything you can move and is subject to legal ownership (other than land). Real property cannot be moved since it’s attached to the land. Since the differences between the two are quite straightforward, determining property clarification is simple. However, there can be cases when it gets difficult to determine what type of property you have to deal with.

 

Why the Distinction Matters

A creditor may intend to take possession of equipment attached to the property. Or someone may want to remove a fixture when moving from the property. That’s when the classification of real and personal property comes in. This concern determines property taxation, either real or personal.

States in the U.S. taxed all tangible property in the past. But, to retain manufacturing and attract new investments, some states are working to eliminate taxes on personal property.

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