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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:
- Musical equipment
- Kitchen appliances
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.
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.