Anything that can be legally owned can be called property. When dealing with property in legal or taxation terms, there are important distinctions as to the nature of the property.

Any property can be categorized into one of two main types:

• Personal Property
• Real Property

There are current property laws that relate specifically to real estate, while others relate to personal property. Additionally, there are laws that help make the distinction on real property vs personal property. Whether a property is considered real or personal can be simplified with a straightforward question: “Can you physically move it?”

However, in a court of law, there are at least 4 criteria that help determine whether an item is personal property vs real estate property. These criteria are all focused around determining whether the personal item can be assigned the label “property fixture or fixture”.

NOTE: A fixture is an item that is originally considered personal property, however, it has been affixed to the real estate property in such a permanent manner that once completed, would constitute real property.

RELATED ARTICLE: Property Management: The Kashmiri Realty Experience

The realty-based meaning to real property refers to:

• Land and its naturally attached vegetation
• Man-made improvements
• Bundle of Legal Rights

We explain in more detail, in this article, what the “Bundle of Legal Rights” are and what it means to your ownership interest. For the sake of conversation and this article, when we use the term real property, we will be focusing mainly on the man-made improvements. Man-made Improvements attached to the land.

The act of severance allows real property to become personal property. Once a portion of the real property is severed from the land and improvements, it is considered personal property. In a similar manner, building materials such as metal or wood can classified under the category of real property if they are attached to the land.

When it comes to agriculture and land, vegetation can fall under both categories depending on its purpose. The trees, plants and natural landmarks on the land is part of the real property and is transferred with the sale of a property. The crop from a farmer’s harvest is slightly different. During the sale of a farmland, the crop can be taken by the seller if stated in the contract. After all, it is the fruits of their hard labor.

RELATED ARTICLE: Florida’s First-Time Home Buyer Down Payment Assistance Program

In the simplest terms, personal property is anything that isn’t real property. However, personal property can be further classified as either:

• Chattels or
• Intangibles

While the term chattel is sometimes used to describe all types of personal property, it most often refers to tangible personal property like clothing or a purse. This is personal property that can be seen or touched. A chattel can also be affixed to land and become real property, like a furnace for example. This transition would make the chattel a fixture.

However, a chattel-turned-fixture can still maintain its status as a personal item if it were to meet certain criteria.

• If the fixture can be easily removed at the end of the lease term without damaging the real estate, such as walls or beams, it may be considered personal property.
• For commercial businesses, personal features affixed to the walls are considered personal property and part of the daily business operations of the lessee business owner.

One example of this is the racks attached to the walls in a nutrition store.

Intangibles are types of personal property that are not considered tangible, or they cannot be seen or touched. While important to the concept of personal vs real estate property, for this topic, intangibles doesn’t paint a picture the way we intended to, we will shift gears back to fixtures.

RELATED ARTICLE: Land, Real Estate, Real Property: What it means for you!

There are often some grey areas when classifying a fixture. For taxation purposes, different jurisdictions often apply a 3-part test to accurately classify fixtures that relate to real property:

• Occupation or Attachment: Evaluation of how property is attached, whether it can be removed, and if removal will cause damage to real property
• Adaptation: Evaluation of how property is used as it relates to real estate
• Intent: Evaluation of whether installing property makes it permanently attached or whether the use of real property changes the intent of the fixture

It’s important to note that there are no steadfast rules for defining what constitutes a fixture. Therefore, this ambiguity can lead to significant taxation issues faced by taxpayers.

If you want to lower your tax burden, learning how to classify real property vs personal property is a worthy endeavor. Because distinctions relating to fixtures can be ambiguous, you will need to consult with a financial or tax advisor to ensure the evaluation of your property’s tax position is legitimate and professional.

RELATED ARTICLE: Non-Freehold or Leasehold Estates