What Is Tangible Personal Property?

"Tangible personal property" is a tax term that refers to personal property that can be felt or touched and physically relocated, such as furniture, office equipm๊ent, machinery, and livestock.

Tangible 💞personal property is used💦 by companies as part of their operations.

It is always depreciated over either a five- or seven-year period using 澳洲幸运5开奖号码历史查询:straight-line depreciation but is eligible for 澳洲幸运5开奖号码历史查询:accelerated depreciation as well. It is taxed in several co𝓰untries, and in many states of the U.S.

Understanding Tangible Personal Property

Tangible personal property, or TPP, includes items such as furniture, machinery, cell phones, computers, and collectibles. It can be touched, unlike 澳洲幸运5开奖号码历史查询:intangible personal property.

TPP does not include 澳洲幸运5开奖号码历史查询:real property, as real property is immovable.

Intangibles, on the other hand, consist of things that cannot be seen or touched, 🃏such as patents 🃏and copyrights.

Many states impose taxes on TPP. These taxes are in addition to the ♚taxes on real property such as land and buildings used to help fund various services such as schools, roads, and emergency medical s🐎ervices.

TPP taxes are regulated ꧙at the state level but are levied primarily by local governments. They can ꦍvary considerably by jurisdiction.

Some states don't charge a TPP tax. Those that do may only apply it to certain items, such as tangible personal property that is valued above a certain threshold or only used for business purposes.

Tangible Personal Property Taxes

TPP can be subject to 澳洲幸运5开奖号码历史查询:ad valorem taxes, meaning the amount of tax payable depends on each 🧜item's fair market value.

In most states, a business that owned TPP on January 1 must file a tax return f💮orm with the property appraisal office no later than April 1 of the same year. Keep in mind, though, that dates may vary by location.

The property appraiser places a value on the property, and the tax amount due is calculated by multiplying the property value by the tax rate set by the tax aꦿuthorities.

Some counties and cities require the filer to list all property on the tax form and to provide the 澳洲幸运5开奖号码历史查询:fair market value and cost for each item.

In these cases, the county will also provide a valuation table that can be used to estimate the value of the property based on its age and useful l🐽ife.

Some states o🌳nly apply a tax on TPP in the year t𝓡he property was purchased.

Deductions

Tangible personal property tax is paid by a landlord or company to its l💙ocal government, but landlords or company owners can claim a de🃏duction for it on federal income tax returns.

To claim the deduction, the tax must only apply to personal property owned and bought for the business’ operation, be based on its fair market value, and be charged on an annual basis (as opposed to one time only).

TPP vs. Intangible Property

As noted, tangible assets are physical items that can be touched and seen, such as machinery and inventory. They're typically used for a company's operations and are subject to depreciation over their useful life (e.g., machinery that breaks down and needs fixing).

Intangible assets, on the other hand, lack physical substance but have value due to their legal or economic benefits. Examples of intangible assets include patents, trademarks, copyrights, and goodwill.

These assets may lose value, but they generally don't depreciate. Instead, for tax purposes, intangible assets are generally amortized over their useful life or a statutory period defined by the IRS (usually 15 years for most intangibles).

Amortization allows businesses to deduct the cost of these assets over time, similar to depreciation for tangible assets, thereby reducing taxable income gradually.

Tax Treatments

Another distinction between tangible and intangible assets lies in their tax treatme𝔉nts. Tangible assets are often subject to different tax rules and recovery periods.

Additionall🍌y, the initial cost basis, which is the starting point for depreciation or amortization, can vary depending on whether the asset was purchased, produced, or acquired through other means.

Properly categorizꦇing assets ensures compliance with tax laws and maximizes allowable deductions.

Tax regulations can also impose specific rules for the capitalizꦡation of costs associated with acquiring or creating both types of assets.

For tangible assets, costs such as installation, transportation, and testing may be capitalized, while for intangible assets, legal fees, registration costs, and other expenditures directly related to securing the intangible property are included in the asset's basis.

All of this is to say that the distinction between tangible personal property and intangible property matꦕters to the IRS.

Example of TPP Taxation

In Florida, anyone who has a proprietorship, partnership, or coꦺrporation; is a self-employed agent or contractor; or leases, lends, or rents property and owned tangible personal property on Jan. 1, must complete Form DR-405 and submit it to their local property appraiser by April 1.

If the TPP is valued above $25,000, the entity or person starts paying tax on it. The property appraisal office usually mails a letter to the company notifying it to file taxe🌳s on its property.

If the company or landlord believes the letter is not applicable, they can return the letter to the office along with another letter explaining why taxes on TPP do not apply to the business.

Where Is TPP Not Taxed?

As of December 20ꦛ24, 14 states levied no taxes on tangible personal property:

1. Delaware  
2. Hawaii 
3. Illinois 
4. Iowa 
5. Minnesota
6. New Hampshire
7. New Jersey
8. New Mexico
9. New York 
10. North Dakota
11. Ohio
12. Pennsylvania 
13. South Dakota
14. Wisconsin

Ten other states and the District oღf Columbia allowed a tax exemption for small amounts of tangible person💜al property. These states are:

1. Arizona
2. Colorado
3. Florida
4. Georgia
5. Idaho
6. Indiana
7. Michigan
8. Montana
9. Rhode Island
10. Utah

States have eliminated the TPP tax because the compliance burden is arduous for the vast majority of businesses and generates small amounts of revenue (except when applied to large businesses and utilities).

Tangible Personal Property and Depreciation

TPP is depreciated over its useful life. The IRS provides guidelines for different classes of property under the Modified Accelerated Cost Recovery System (MACRS).

This system outlines specific depreciation methods and recovery periods depending on the ty🀅pe of asset:

• 5-Year Property: Includes computers, office equipment, cars, and trucks
• 7-Year Property: Includes office furniture and fixtures
• 10-Year Property: Includes certain agricultural machinery
• 15-Year Property: Includes gas infrastructure and some land improvements
• 20-Year Property: Includes farm buildings
• 25-Year Property: Includes sewers and water distribution infrastructure

The most commonly used depreciation methods under MACRS are the General Depreciation System (GDS) and the Alternative Depreciati🦂on System (ADS).

GDS usually provides faster depreciation 🗹with methods like the double-declining balance, while ADS offers a longer recovery period with a straight-line me๊thod. The latter is often used for tax-exempt and foreign-use property.

Section 179 Expensing

Section 179 of the IRS Code allows businesses to exp🃏ense the full purchase price of qualifying TPP inܫ the year it is placed in service, rather than capitalizing and depreciating it over time.

For tax year 2024, the maximum deduction limit is $1,220,000, with a phase-out threshold of $3,050,000.

This provision is designed to encourage businesses to invest in new equ𒀰ipment by providing immediate tax r✅elief.

To qualify for Section 179 expensing, the TPP🌊 must be acquired for use in a trade or business, newly purchased (not acquired from a related party or through a gift or inheritance), and placed in service during the tax y☂ear.

Bonus Depreciation

Bonus depreciation allows businesses to deduct a significant percentagওe of the cost of qualifying property in the year it is placed in service.

The 澳洲幸运5开奖号码历史查询:Tax Cuts and Jobs Act of 2017 allowed businesses to take a 100% bonus depreciation on new and used TPP acquired and placed in service after Septe♌mber 27, 2017, and before January 1, 2023.

Per the act, this provision continues to phase out by 40% in 2025 and 20% in 2026, with no bonus depreciation available in 2027, unless Congress extends it.

The Bottom Line

Tangible personal property, or TPP, is personal property that can be felt or touched and physically relocated. That covers a lot of items, from machinery, equipment, and livestock to jewelry a🍬nd cell phones.

I🥂n many states, these items are subject to ad valorem taxes. How ✅tangible personal property is taxed can vary considerably, not just by state but also by county and city.

Some jurisdictions rely heavily on th꧋is tax, whereas others have completely banned it or offer various exemptions.