Real Property

Real Property refers to land and anything permanently attached to or built upon it, including buildings, structures, improvements, and fixtures. Also known as real estate or immovable property, real property represents one of the most significant asset classes for both individuals and businesses, carrying important tax implications for ownership, sale, rental, and inheritance.

Real property consists of several components: the land itself, including surface rights and potentially subsurface mineral rights; permanent structures such as houses, commercial buildings, garages, and sheds; improvements to the land including driveways, fences, landscaping, and utility systems; and fixtures, which are items originally personal property that become permanently attached to real property, such as built-in appliances, lighting fixtures, and installed carpeting. Real property differs from personal property (movable items like furniture, vehicles, and equipment) in its permanence and attachment to land.

Real property ownership triggers various tax considerations and obligations. Property taxes are annual taxes assessed by local governments based on the property’s assessed value, deductible on Schedule A up to the $10,000 SALT cap when itemizing. Mortgage interest on loans secured by real property is deductible for primary and secondary residences, subject to debt limitations. When selling real property, capital gains or losses must be reported on Schedule D, with primary residence sales potentially qualifying for the $250,000/$500,000 capital gains exclusion if ownership and use tests are met.

Real property used in business or held for investment purposes can be depreciated over 27.5 years for residential rental property or 39 years for commercial property, providing annual deductions that reduce taxable income. Real estate investors may benefit from 1031 like-kind exchanges, deferring capital gains by reinvesting proceeds into similar investment property. Real property transferred through inheritance receives a stepped-up basis to fair market value at death, potentially eliminating capital gains taxes for heirs.

Proper documentation of real property transactions, improvements, and expenses is essential for accurate tax reporting and maximizing available deductions and exclusions related to real estate ownership and disposition.