What is Personal Property, Tangible Personal Property and Intangible Personal Property

What is Personal Property?

Personal property is a category of property that encompasses all assets besides real estate. Personal property is distinguishable from real estate in that it is mobile; that is, it is not permanently affixed to a single location. Typically, it is not taxed like fixed property.

Personal property includes items such as furniture, appliances, and electronic devices. These items are distinguishable from real property because they are mobile.

Personal property can be intangible, like stocks and bonds, or tangible, like clothing or artwork.

Personal property, like real property such as a house, villa can be used to secure loans. A common example is a loan secured by the vehicle itself, such as a car loan.

Personal property plays a role in homeowners insurance decisions. In most homeowner insurance policies, coverage for personal property ranges from 50 to 70 percent of a home's value.

Understanding About Personal Property

Personal property is also referred to as immovable property, movable property, and chattels. Because it is considered an asset, a lender may consider it when a borrower applies for a mortgage or other loan.

Individuals can insure their personal property in one of two ways. First, for its current value, which accounts for depreciation, or second, for what it would cost to replace it with a comparable new item.

Some types of property, including household appliances, clothing, and automobiles, tend to lose value over time. Other types, such as artworks and antiques, may gain value over time. When determining a potential borrower's creditworthiness, creditors may consider the total current value of their personal and real property.

Personal property can either be tangible (movable) or intangible (immovable). Personal property examples include vehicles, furniture, boats, and collectibles. Bank accounts, stocks, and bonds are some of the examples of intangible personal property.

Some loans, like mortgages loans, are secured by real property such as a house or condo, while others are secured by personal property. Car loans are one of the common example of a secured loan, with the vehicle serving as collateral.

Personal Property and their Insurance

Personal property also plays a role in homeowners insurance. A homeowner's insurance policy typically includes coverage for the owner's personal property, also referred to as the "contents" of the home.

The value of the policyholder's personal property is typically calculated as a percentage of the dwelling's value, ranging from 50 to 70 percent. For instance, if it would cost $400,000 to rebuild a home if it burned to the ground, the coverage limit for the owner's personal property may be 70% of that amount, or $280,000.

Typically, homeowners insurance policyholders have two options for covering their personal property: replacement value and actual cash value. If the policy stipulates replacement value, the insurer is obligated to replace a lost or damaged item with a new one of comparable quality. With actual cash value, the insurer is obligated to pay only the depreciated value of the item.

Consequently, if a 5-year-old refrigerator were destroyed in a house fire, a homeowner with replacement coverage would receive enough money to purchase a new refrigerator, whereas a homeowner with actual cost coverage would receive whatever the insurance company determined a used 5-year-old refrigerator was worth.

Special Considerations

In the event that their personal property is destroyed, policyholders must file a claim with their insurance company and provide a detailed description of what was lost. As a result, homeowners are well-advised to create an inventory of their personal belongings, preferably with photographs and receipts, and store it safely off-site, just in case it's ever required.

Certain types of personal property, such as jeweler and computers, are excluded from coverage under homeowner's insurance. For instance, a policy may limit jeweler coverage to $1,500. Policyholders whose jeweler is worth more than that may pay additional premiums to increase the policy's limits or purchase additional insurance, commonly referred to as a floater, to cover its full value.

Tangible Personal Property

What is Tangible Personal Property?

The tax term for personal property that can be physically moved, such as furniture and office equipment, is tangible personal property. Tangible personal property is always depreciated over a period of either five or seven years using straight-line depreciation, but it is also eligible for accelerated depreciation.

The tangible personal property of a business or rental property is anything other than real property (land and buildings).

Understanding About Tangible Personal Property

In a sense, tangible personal property is the opposite of real property, which is immovable. Unlike intangible personal property, tangible property can be physically touched. Compare tangible assets such as furniture, machinery, cell phones, computers, and collectibles to intangible assets such as patents, copyrights, and non-compete agreements, which cannot be seen or touched.

Tangible property also includes all miscellaneous assets that do not inherently qualify for any other class of life, such as jewelry, toys, and sports equipment.

Tangible personal property represents anything that can be used as a desk, bed, lamps, or other furnishings for a rented home or business.

Immovable property is subject to ad valorem taxation. A business that owned tangible property on January 1 in the majority of states must file a tax return form with the property appraisal office by April 1 of the same year. The property appraiser assigns a value to the property, and the tax liability is determined by multiplying the property's value by the tax rate established by the state's tax authorities.

For tax purposes, property owners who lease as well as rent tangible personal property must also file this return.

Some counties and municipalities require filers to list all property on the tax form and to include the fair market value and cost of each tangible property. In these instances, the county will also provide a table that can be used to estimate the property's value based on its age and useful life. Certain states impose a tax on tangible property only in the year of purchase.

Example of Taxes and Tangible Personal Property

Any business that acquires tangible property after January 1st must file an initial tax return. If the assessed value of the business's personal property exceeds $25,000 in any given year after the first year of filing, the business must file a tax return. Typically, the property appraisal office will notify the company by mail that it must file property tax returns. If the company or landlord believes the letter is irrelevant, it may be returned to the office along with a second letter explaining why taxes on tangible personal property do not apply to the company.

A landlord or business pays tangible personal property tax to its local government, but landlords or business owners can claim a deduction on their federal income tax returns. To qualify for the deduction, the tax must only apply to personal property owned and purchased for the operation of the business, be based on the property's fair market value, and be assessed annually (as opposed to a one-time basis).

Intangible Personal Property

What Is Intangible Personal Property?

Intangible personal property refers to an item of value that can't be physically touched or held. Individuals and corporations are able to possess these assets. Image, social, and reputational capital, along with digital, copyrights, patents, and investments, can constitute intangible property. Intangible personal property or intangible assets are indeed the opposite of tangible personal property, such as machinery, jewelry, and electronics, which can be physically touched and have a degree of value.

Intangible personal property lacks physical form but represents something of value other than itself.

Intellectual property is among the most widespread types of intangible personal property.

Image, social, and reputational capital, as well as personal social media pages and other digital assets, are examples of intangible personal property.

Intangible assets include patents, copyrights, life insurance contracts, investments in securities, and partnership interests.

It is the opposite of tangible personal property, which includes machines, jewelry, electronics, and other items that can be touched and assigned a value.

Understanding About Intangible Personal Property

There are several categories of personal property, including tangible and intangible personal property. Tangible personal property is anything that can be held and has a definite value, whereas intangible personal property is anything that cannot be held and has no obvious value. The differences between the two are discussed a little further down.

The value of intangible personal property is derived from the associated benefits and recognition of value. One of the most prevalent types of property is intellectual property. Other types of intangible personal property include contracts for life insurance, investments in securities, royalty agreements, and partnership interests. Goodwill, research and development (R&D), and patents are the most prevalent types of intangible property for businesses.

Some of these intangible assets are referred to as capital assets and are included in a company's financial statements, while others are not. On its balance sheet, a company would list a trademark or patent as an asset, for instance.

The company may need to conduct extensive market research to establish a realistic price for intangible items. Once a value is assigned to this property, a portion of the object's creation cost may be written off. Examples include the cost of compiling a mailing list of customers or clients or hiring an attorney to file a patent application.

Commonly, intangible personal property is known as incorporeal property.

Special Considerations

The Internal Revenue Service (IRS) applies capital gains taxes to the sale of all tangible property by individuals and businesses. Regarding intangible assets, however, the picture can be murky. This type of property has no assigned or fixed value because it lacks a physical form, making it difficult to account for and evaluate. Therefore, not all types of intangible personal property are subject to taxation.

However, certain types of intangible assets qualify for capital gains and losses. When an asset is sold at a higher price than its original purchase price, a capital gain is realized, whereas a capital loss occurs when the asset is sold for less than its original purchase price. The worth is determined by intellectual or non-physical characteristics. For instance, a musical composition may be taxed when it is resold at a price different from the original purchase price.

While tangible assets may be depreciated, the IRS requires property owners to amortize intangible assets purchased prior to August 1993 over a period of 15 years. This is because their average lifespan is 15 years. These are any assets held for commercial or business purposes.

Nonetheless, due to the Tax Cuts and Jobs Act of 2017, certain intangible assets may be taxed as ordinary income. Examples include intellectual property, digital assets, and patents. Consult a tax expert for advice on how to handle your intangible assets.

Intangible Personal Property vs. Tangible Personal Property

As stated previously, intangible personal property consists of anything that lacks apparent value and cannot be physically manipulated. In contrast, tangible personal property is anything that can be held and has a discernible value. As such, it can be relocated.

Tangible assets can be utilized by both businesses and individuals in their day-to-day activities. Machinery, vehicles, jewelry, art, electronics, and furniture are some examples. Smartphones and collectibles are also included in this category.

This type of tangible asset is subject to depreciation, appreciation or utilizing the five- or seven-year periods. Ad valorem taxation necessitates the use of an appraiser to determine a property's value. It may also be taxed based on its actual value, which is the difference between the sale and purchase price.

Real estate is not considered personal property because it is immobile, a defining characteristic of personal property.

Examples of Intangible Personal Property

Suppose Firm ABC invented a liquid that, when applied to a tattoo, causes it to blend into the surrounding skin, making it invisible. Additionally, a solvent is utilized to remove the tattoo-blocking solution. The company ABC grants patents for both formulations. The patent, which prevents others from copying the formulas, grants the company exclusive ownership rights for the duration of the patent.

The company enjoys the financial benefits of being the sole distributor of this innovative tattoo-blocking compound. These future financial benefits are represented by the patent, which has no inherent value but is valuable due to these future benefits. The company will include the patents as a capital asset and may deduct a portion of the listing expenses.

What Assets Are Considered Intangible Personal Property?

Intangible personal property is anything that cannot be physically held and has no readily apparent or assigned value. Copyrights, patents, intellectual property, investments, digital assets, and anything with image, social, or reputational capital are examples of intangible assets.

What is the Difference Between Intangible and Tangible Personal Property?

Intangible personal property consists of all non-tangible assets with monetary worth. Copyrights, intellectual property, patents, and investments are examples of intangible personal property. Social or reputational capital-representable assets also qualify as intangible personal property. In contrast, tangible personal property refers to assets that can be touched and assigned a value, such as jewelry, art, machinery, and electronics.

Whether Intangible Property Taxable?

Intangible personal property lacks a physical form and, consequently, has no monetary value. This makes it difficult to account for and evaluate them accurately. However, some types of intangible personal property are subject to capital gains taxes. This occurs when they are sold for more than they were purchased for. The value of an asset and, consequently, any capital gains resulting from its sale are determined by its physical characteristics and intellectual content. When sold, valuable assets such as musical compositions can generate capital gains. Patents and other forms of intellectual property, for example, may be taxed as ordinary income.