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Fixed Assets: Real Vs. Personal Property

A fixed asset in business is an asset purchased that is not likely to be converted to cash within one year. Assets can be land, buildings and equipment, which are real property assets used in generating revenue of the company. Real property is property or real estate that cannot be moved, such as land, oil, gas and minerals, trees, and buildings. Personal property is property that you can take with you when you move, for example, computers, desks and equipment.

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Real Property TaxationReal property taxes include two specific types of taxes. The first tax is a property tax or ad valorem tax — Latin meaning value. It is based on the value of the property and is paid to the government in the jurisdiction the property is located. The second tax on real property is the special assessment tax that is predicated on the “special” benefit that a public project brings to the property. Whereas the property tax is predicated on “fair market value” the special assessment tax is promulgated on the assumed benefit that a public works project brings to the property.

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Personal Property TaxationPersonal property, that property which can be moved, is taxed essentially one time at the point of purchase via sales tax. However, in many states, personal property taxes are applied on a variety of nonbusiness property, such as airplanes, old cars and farm equipment. In business, personal property is assessed and taxed similar to real estate. Personal property taxes do not normally apply to business inventories or intangible property, such as copyrights or trademarks.

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Real and Personal Property IntersectionLand with other natural resources situated on or below the surface — such as hardwood standing timber (trees), oil, natural gas, coal or other minerals — are treated as real property. Once the resource is mined, extracted or harvested, the resource then becomes personal property. Taxes are due upon the sale of the property. In some cases there will be a severance tax that applies to oil, coal and natural gas. This tax is assessed on nonrenewable resources.

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Real & Personal Property Business RealitiesTaxes are inevitable, and in some cases are due even if you do not recognize a profit. For instance, the severance tax is assessed even if the resource is sold at a loss. If you own land that contains natural resources, you will not be taxed, but you will have property taxes due on the land and any improvements, such as buildings. Individuals owning timberland will be taxed on the sale of the harvested timber. The sale will result in a long-term capital gain if you have owned the land for over one year.

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