What Is Tangible Personal Property?
Tangible personal property refers to personal belongings that can be physically touched and moved, such as furniture, office equipment, machinery, and livestock. These assets are typically depreciated over a five- or seven-year period using straight-line depreciation but can also benefit from accelerated depreciation. In several regions, including parts of the U.S., they are subject to taxation.
Key Takeaways
- Tangible personal property can be physically touched and relocated.
- Examples include office equipment, livestock, jewelry, toys, light trucks, and buses.
- Taxable in many regions, including several U.S. states.
- Tax policies vary widely, with some exemptions available.
Understanding Tangible Personal Property
Tangible personal property differs from real property, which is immovable, and from intangible personal property, which cannot be seen or touched. Examples include furniture, machinery, cell phones, and collectibles. Whereas real property includes land and buildings, intangibles consist of things like patents and copyrights.
Local governments typically impose property taxes on tangible personal property in addition to taxes on real property. These taxes fund essential public services such as schools, roads, and emergency medical services. Tax rates can differ greatly by jurisdiction, and some regions may only tax certain items or values above a specific threshold.
How Tangible Personal Property Is Taxed
Tangible personal property is often subject to ad valorem taxes, which are based on the fair market value of each item. In many states, businesses must file a tax return for tangible personal property owned as of January 1 by April 1 of the same year. The property value determined by the appraiser is multiplied by the tax rate to calculate the tax due.
In various jurisdictions, detailed records must be maintained, including fair market value and cost. Some places use valuation tables to estimate the property value based on age and useful life. Others may only apply these taxes during the year of purchase.
Deductions
Businesses can often claim deductions for tangible personal property taxes on their federal income tax returns. These deductions are allowed if the property is used for business operations, is taxed annually, and the tax is based on fair market value.
Example: Tangible Personal Property Tax in Florida
In Florida, entities including proprietorships, partnerships, corporations, self-employed agents or contractors, or those who lease, lend, or rent property, must file Form DR-405 if they own tangible personal property as of January 1. Property valued above $25,000 is taxable. The local property appraiser informs owners of their tax obligations, who can respond if they believe the tax does not apply.
States with No Tangible Personal Property Tax
Seven states exempt all tangible personal property from taxation. They are:
- Delaware
- Hawaii
- Illinois
- Iowa
- New York
- Pennsylvania
- South Dakota
Additionally, some states, such as New Hampshire, New Jersey, North Dakota, and Ohio, exempt most tangible personal property from taxes. In 2023, numerous states proposed reducing or banning these taxes entirely due to their complexity and administrative costs.
Example of Tangible Personal Property
Tangible personal property includes items that can be physically touched and moved, such as cars, refrigerators, jewelry, printers, and cell phones.
Understanding Intangible Assets
Intangible assets are non-physical items of value, like brands, goodwill, and intellectual property. These are essential to a company’s worth but are harder to quantify.
Specific Regulations: Pennsylvania
Pennsylvania does not collect personal property taxes, although some counties, municipalities, and school districts may impose real property taxes.
Conclusion
Tangible personal property includes items that can be physically touched and moved, like equipment, livestock, and jewelry. These assets are subject to varying tax policies depending on the state or locality. While some areas impose significant taxes on these assets, others may have exemptions or completely eliminate the tax. Understanding these rules is essential for effective financial planning and compliance.
Related Terms: Intangible Personal Property, Real Property, Fair Market Value, Depreciation.
References
- Internal Revenue Service. “Publication 946, How to Depreciate Property”.
- Tax Foundation. “States Should Continue to Reform Taxes on Tangible Personal Property”.
- Cornell Law School. “Tangible Personal Property”.
- Reuters. “Property Tax 101.”
- Okaloosa County Property Appraiser. “Tangible Personal Property FAQs”.
- Internal Revenue Service. “Publication 17, Your Federal Income Tax”.
- Internal Revenue Service. “Tangible Property Regulations - Frequently Asked Questions”.
- Florida Department of Revenue. “Tangible Personal Property”.
- Florida Department of Revenue. “Tangible Personal Property Appraisal Guidelines”.
- MultiState. “States Continue to Move Away from Taxing Personal Property”.
- Tax-Rates.org. “Pennsylvania Property Taxes 2023”.
