The difference between real and personal property may not seem consequential on the surface. However, the legal distinctions of each property type determine how value can be classified, protected, taxed, and transferred.
Ownership rights for property vary from one jurisdiction to the next, with distinct considerations at federal, state, and local levels. This makes due diligence for regional classifications of real property versus personal property essential when investing in real estate.
Understanding the complex subtleties of property rights will help you navigate investment opportunities with greater awareness.
Property Ownership Classifications
Many loans utilize property as collateral to reduce the level of risk assumed by the lender. The most familiar example of this is to leverage real estate as collateral to secure a mortgage or a deed of trust.
Other assets can also be used to secure financing, including vehicles, machinery, stocks, and any property representative of value. Many businesses use asset-based loans to secure working capital or facilitate mergers and acquisitions. So, what is real property versus personal property?
The term “real property” applies to land and any man-made or naturally occurring structures attached to it. It is often used interchangeably with the term “real estate” because both share the historical context of identifying a vested interest, such as a physical estate. However, real property more broadly accounts for the benefits and rights associated with ownership of real estate.
Real property extends beyond structures, like a home or fence, to features of the land, including water, vegetation, minerals, and natural resources. Permanent improvements to structures, like parking facilities, water heaters, and utility upgrades, are generally considered part of the real property.
The term personal property applies to anything else of inherent value that can be characterized as movable. There are two forms of personal property:
- Tangible personal property can be any physical item, from artwork, jewelry, and furniture to appliances or vehicles.
- Intangible personal property covers anything from a bank account to a trademark. These often refer to legal rights, patents, intellectual property, and financial investments such as stocks or bonds.
Distinctions Between Real Property vs. Personal Property
There are two practical distinctions between real and personal property: permanence and mobility. Let’s look at what those distinctions mean.
Land has an inherent permanence because it exists in a fixed location. In most cases, any structures are intended to add permanent value to the land. By contrast, items of property may be long-lived but are considered replaceable.
Personal property can easily move from one place to another when needed. Real property is secured to a physical location and cannot be moved. Complex circumstances, like structural relocation in which an entire home is moved, are rare exceptions.
Context and Property Status
Although the differences may appear clear-cut, some items are more difficult to classify when their status is subject to change. Furniture or appliances may be considered personal property in an ordinary home, but if that home is a rental property, the use of furniture and appliances in relation to the real estate may be classified as real property.
Context plays a significant role in property classification. Assets such as equipment and machinery are largely considered personal property in commercial settings unless they are permanently installed. However, each jurisdiction will have its own legal distinctions.
Navigating the Ownership Rights of Real Property vs. Personal Property
For investors, the implications of ownership are more significant than the way property is bought and sold. The specific designation of real property versus personal property also determines how it’s taxed.
It is not uncommon for tax laws to be revisited as a financial incentive. Some assets may experience tax benefits or exemptions that can increase their appeal as an investment.
To ensure you have a full financial picture, including tax and legal complications, it’s best to consult with your accountant, attorney, or CPA regarding any potential investments. When reviewing properties, our experienced team of specialists at Val-Chris Investments can help you secure quick approvals for the funding you need to take the next step. Contact us today.