Before we dive into selling or buying properties, we MUST know what we are getting ourselves into!
Lucky for us, the difference between real property and personal property is “fairly” simple (once we go down to the basics).
There is ONLY ONE question – Is the property movable?
It’s a simple yes or no. But, nothing is simple about the major implications on how the law will treat your property.
Read on to know more about the distinction between real and personal properties.
Real Property vs. Personal Property: The What’s
In our law, a property can only be real property or personal property.
The classification is mainly based on our earlier question. Is the property movable?
- YES. The property is personal property.
- NO. Your property is real property.
There are only these two property types according to our laws. Head on to the sections below for a more in-depth discussion.
Real property is any piece of property rendered immovable.
In simple terms, this type of property will include LAND.
The land is permanently fixed on a location. Aside from this, the property will also include all the BUILDINGS AND FIXTURES attached to the land.
Essentially, anything you built (or grow) on the land will fall under an immovable property. But that can be pretty vague.
The legal world came up with more specific groups to classify real property.
- By nature
- By incorporation
- By destination
- By analogy
Personal property, on the other hand, is movable property.
Personal property can be anything you own (except for land and all things attached to it permanently).
Legal definitions on personal property usually cover PERSONAL ITEMS AND GIFTS. But, it can also include lost, abandoned, or stolen properties.
Any possession that falls under personal property can be further classified.
Here are the personal property categories.
- Tangible property
- Intangible things
If you find things complicated, here is a SIMPLE RULE OF HAND. If it does not fall under real property, it is personal property.
Real and Personal Property: The Specifics
We know we said that the difference is relatively simple. It is. But, will all things legal, it can sometimes get complicated.
Here are some guides to help you when the difference doesn’t seem clear-cut anymore.
In general, real property is all about REAL ESTATE.
It’s the land and all permanent additions attached to it. But, exactly which additions or improvements become attached and permanent?
Here is a quick classification of real property.
Real Property by Nature
This group of real properties includes the basics: the land and the buildings.
All other building materials and other building supplies that become fixed on the said land are part of this group. Trees and plants that *were not personally planted* are also under real estate by nature.
Real Property by Incorporation
Another definition of real property is any material that cannot be removed WITHOUT CAUSING DAMAGE to the property.
Any item, fixture, or property that falls under this is a real property by incorporation.
Here are some other specific examples.
- Trees, shrubs, fruits, and plants that are personally planted
- Permanent statues, paintings, and installation arts
Real Property by Destination
The most important guide for this group is the INTENTION OF PERMANENCY.
If a moveable fixture was placed to be permanently there, it is considered real property (by destination). Here are some concrete examples to help you visualize.
- Floating fixtures, structures, and installations on lakes, docks, rivers, or any body of water
- Public works machinery and materials
- Animal houses and breeding places (including the animals in them)
Real Property by Analogy
The last group involves real rights of immovable properties. This classification tackles mineral rights and other rights.
Personal property is not fixed on a specific location.
These movable properties are sometimes called chattels. But the more specific way of classifying personal property is through its TANGIBILITY.
Tangible personal property is an item you can *physically* feel or touch. The term CHATTELS usually refers to tangible property.
Some examples are:
- Office furniture and office supplies
- Business equipment
- Business vehicles
- Other moveable business goods and materials
Let’s say you don’t have real property.
You don’t own land or real estate. To get to work or school, you (as a tenant in this example) got a lease on an unfurnished studio unit.
After your lease contract ends, all the furniture you bring is classified under chattels.
The furnished properties remain personal if you and the owner agree to remove fixtures after the effective legal term.
Intangible property is any personal item you can’t touch. What does that specifically mean?
The intangibles are all about LEGAL RIGHTS. They are created to define a property that you own but is not specifically a physical thing.
It can be hard to understand without examples. Here are a few possible legal right properties you may own.
- Intellectual property
- Insurance policies
MONEY is the closest example of intangibles that we can all relate to (as an average person). Our bank accounts are excellent examples of intangible personal property.
Real Property and Personal: The Why’s
Why do we get into the hassle of classifying properties as real property and personal?
These boil down to three things: TAXES, DISPUTES, and INVESTMENT.
There is a myriad of implications of the type of property in terms of taxing.
The real estate tax is assessed on the property’s asset value (commercial, residential, and industrial). In contrast, personal property tax is only subject to tax if you use it for business purposes.
Also, real estate is a form or matter of public record. It cannot be concealed.
The house you are living in, for example, is attached to the land. A house and lot cannot be moved or hidden. In stark contrast, dealing with personal ownership is messier.
Personal items are mobile and can be kept, shipped, or hidden. It can be easily concealed.
Note: The many different laws will also tell you that real estate tax is usually VERY STEEP compared to tax on personal ownership.
Lastly, let’s remember that taxation highly influences investments.
The difference between real property and personal is also essential in the interest of disagreements.
Imagine this: A lender asserts their right to assume ownership of some form of machinery in one place.
The law will tell you that the machinery is “attached” to the land and will therefore be taxed as real estate.
Even if it is moveable and not physically fixed on the land, it will not be your creditor’s personal property.
Knowing the type of property will be helpful in taking point on real estate concerns.
The next time you decide to create a shed by your house, you’ll know better!
Can you call your shed personal property?
The material used was initially an article of personal property. But, you submit it as a real property once it is attached on land.
The BOTTOM LINE of all this? The distinction between real and personal property will help you deal with your taxes better.
If you’re still unsure, you can shoot me an email and I am happy to help!