Real Property vs. Personal Property: Difference and Types

Real property is usually land, improvements to land, houses and unextracted natural resources. Land includes water, airspace, crops, minerals or other natural resources. Improvements to land include permanent structures, such as buildings, parking facilities, transmission lines, fences and in-ground pools, as well as components such as water heaters, furnaces and security systems.

Personal property includes both tangible and intangible goods such as clothing and financial holdings. The Internal Revenue Service splits personal property into two types:

• Tangible personal property — includes vehicles, antiques, silver, artwork, collectibles, furniture, machinery and equipment.

• Intangible personal property — includes patents, copyrights, stocks and the goodwill value of a business^[0]

  Cornell Law School Legal Information Institute. 26 CFR § 1.856-10 - Definition of real property. Accessed Jun 1, 2023.

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» MORE: Learn the 7 key steps of estate planning

The main difference between real property and personal property is that real property is land and any permanent structures on it; personal property refers to anything else you can own.

Exact definitions for real property and personal property depend on the jurisdiction. In North Dakota, for example, personal property is anything “that is not real [property]”^[0]

» MORE: Why your estate plan may need asset appraisals

You could probably quickly categorize most things you own into real property and personal property. But legal quirks do arise in some situations.

• Property can change from real property to personal property or vice versa^[0]

  North Dakota State University: Agriculture Law and Management. Categories of Property. Accessed Jun 8, 2023.

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  . For example, a field of corn is generally considered real estate, but once it’s harvested, it becomes personal property. A pile of bricks is personal property, but it becomes real property if it's converted into a patio. Gold ore in the ground underneath your basement is real property, but a stack of gold bars in your basement is personal property.

• An object’s context can affect whether it’s personal or real property. Furniture in your house is personal property, for example, but the furniture in a rental property could be real property in some instances.

• Some things aren’t easily classifiable, such as residential solar panels or machinery or equipment at a business. 

The differences between real property and personal property can make a difference when you’re doing estate planning or even just writing a will. Tax law sometimes singles out specific kinds of property, and the options available for distributing part of an estate to a beneficiary can depend on the property type. Here are a few examples:

• Tax laws treat some types of property differently. For example, some family farms — real property — may qualify for tax exemptions.

• You can transfer specific types of property immediately upon your death. Some states let you use a transfer on death (TOD) deed to transfer ownership of real property to someone else the moment you die, bypassing probate. A TOD is typically for real property, though some states allow it for certain types of personal property, such as vehicles^[0]

  Vermont Department of Motor Vehicles. Death of Owner. Accessed Jun 1, 2023.

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• Some trusts work well — or not — with different kinds of property. For example, moving a retirement account to a trust can have tax consequences. Even if it’s allowed, it might not be worth the cost^[0]

  The American College of Trust and Estate Counsel. IRAs and IRA Beneficiaries. Accessed Jun 1, 2023.

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Even if an estate isn’t worth millions of dollars, estate planning can be complex. For example, one person might prioritize minimizing taxes, and another might prioritize building safeguards for a beneficiary with a mental illness or a disability. A qualified estate planning attorney can help you explore options you may not know you have.