Real Property

Real property is the legal category for land and the things permanently attached to it, as opposed to personal property, which is everything else. Florida's property-tax code gives one statutory version: "'Real property' means land, buildings, fixtures, and all other improvements to land," and adds that "the terms 'land,' 'real estate,' 'realty,' and 'real property' may be used interchangeably." Federal tax law writes its own definitions for its own purposes; for like-kind exchanges, the Treasury regulation defines it as "land and improvements to land, unsevered natural products of land, and water and air space superjacent to land."

In everyday use "real estate" and "real property" mean the same thing. The precise boundary is set by whichever law is being applied, which is why a statute or contract that turns on the classification usually defines it.

What counts as attached. Land is the starting point. Buildings and other structures become part of the real property when they are permanently affixed, and so do fixtures, items that began as personal property and were attached to the land or a building in a way that makes them part of it. The test for a fixture is state law and is applied to the facts, so the useful thing to know is the kind of question it asks. The Treasury regulation for like-kind exchanges is a clear federal example: it treats a structure as permanent based on "the manner in which the distinct asset is affixed," whether it is "designed to be removed or to remain in place," the damage removal would cause, any sign that the attachment is not meant to be indefinite, and the time and expense of moving it. It lists in-ground swimming pools, fences, paved parking and grain silos among permanent structures, and treats a building's interconnected systems for electricity, heat and water as structural parts of it.

Rights as well as things. Real property includes interests in land that you cannot touch. The same regulation lists fee ownership, co-ownership, a leasehold, an option to buy real property, an easement, and stock in a cooperative housing corporation as intangible assets that count as real property for exchange purposes. That last item shows how much the answer depends on the purpose: for most state-law purposes a co-op interest is treated as personal property, because the owner holds shares and a lease rather than land, even though a federal tax rule may count it as real property.

Items that sit on the line. A manufactured home can be personal property, titled under a state certificate much like a vehicle, or converted to real property under state law by affixing it to land the owner holds. The 1031 regulation counts "unsevered natural products of land" as real property, so what grows on land is part of it until it is cut or harvested. A lease is a right to occupy and use someone else's real property for a term. In each case the classification decides which rules apply rather than describing the object.

What the classification decides. Real property is conveyed by deed and its ownership is proved through the public land records of the county where it lies, while most personal property passes by delivery, a bill of sale or a title certificate. Real property is taxed by the local ad valorem property tax. Liens on it are recorded in those same land records. And when an owner dies, real property is administered where it sits, which is why a house in a second state can require a second probate proceeding. Federal tax law adds its own lines: since 2018 a like-kind exchange under section 1031 reaches real property only, and the 1031 regulation says its definitions apply "only for purposes of section 1031," so a building component can be real property there and still be treated differently for depreciation.

Whenever a rule turns on the classification, the question is the same: is this item, or this interest, part of the land under the law that governs this particular rule? Answer it separately for each purpose, because a state's property-tax code, its recording statute and a federal tax regulation can each answer it differently.

Take an example from a like-kind exchange. Odette sells a furnished rental house for $750,000. The land, the house, its wiring, plumbing and heating systems, the fence and the in-ground pool are real property. The furniture and freestanding appliances, valued at $30,000 in the sale contract, are personal property. She reinvests through a section 1031 exchange into another rental property. Because section 1031 reaches only real property, the exchange can cover the $720,000 attributable to the real property; the $30,000 of furniture and appliances falls outside it, so any gain on those items is taxed in the year of the sale. Allocating the price in the contract is what makes that split visible.

Real property is a legal category rather than a product, so what follows is what the classification means for an owner.

What the classification gives

• Ownership is publicly recorded, so a buyer or lender can verify it and an owner's claim is protected against later competing claims.
• It qualifies for treatment personal property does not get, such as a like-kind exchange under section 1031.
• Rights such as easements and leaseholds are recognized as property, which lets them be bought, sold and financed.

What the classification costs

• Transfers require a deed, recording and often title insurance, which makes them slower and more expensive than moving personal property.
• Real property is subject to the local property tax every year unless an exemption applies.
• An owner who dies holding real property in another state may need a second probate proceeding there.
• Whether a particular item is real or personal property is a state-law question that can be disputed, so it is worth settling in the sale contract.