© Southeast Appraisal Resource Associates, Inc. 2019
PERSONALTY VS. REALTY
Southeast Appraisal
The answer to the question “What is personalty and what is realty?” is critical in almost all tangible
asset property appraising. For insurance appraising the buildings vs. contents treatment may be rate
related. In purchase price allocations (financial and/or income tax reporting) the life of the assets may
well follow their classification, thereby affecting earnings. In cost segregation situations the answer is
critical to the assets treatment under 39-, 15-, 7- or 5-year lives, affecting cash flow through
accelerated depreciation. In property taxation again the tax rates may differ depending on the
classification, or personalty may not be taxed at all.
So it is important to understand the difference in each type of situation. Generally for insurance the
buildings are usually considered the major structures, with equipment sheds being considered
personalty. The same classification process may well apply to purchase price allocations. For example,
a shed that houses an air compressor is attached to the main building. This shed (called an equipment
enclosure) is personalty. Be aware, this shed could be very small, say 10’ x 10’, or it could be large, say
10’ x 50’, but no matter. The same example may apply to process electrical equipment enclosures. This
appraiser recently listed one such structure that was 40’ wide by 150’ long. It housed only buzzing
equipment gear. There were no lavatories, no windows, no emergency doors, inadequate personal
comfort HVAC, and certainly not any noise abatement. Therefore, it is an equipment enclosure which
has a shorter life than a building structure that may have other uses. A last example is the telephone
switchgear structures one may see along the road in rural America. These are equipment housings.
The Ad Valorem tax assessor may consider things differently and in fact may well differ from one
taxing authority to another. Usually such professionals prefer to include anything attached to the land
as a building. In many cases the realty mileage rate and the calculations of tax are higher for the realty,
and in many cases there is not a tax on personalty, so more is designated as realty. Such variances
may be quite minor, but in many cases this classification is a very contentious issue with significant tax
dollars being at stake.
This appraiser’s answer is rather simplistic (other than relating to cost segregation matters) in that any
structure that relates to the particular business in place is personalty. From another perspective,
change the business user of the realty and determine what will likely remain and what will be taken
away and/or abandoned. Anything remaining is realty. Yes there still are gray area items and there
always will be, regardless of the demarcation thought, but perhaps these thoughts on possible
classification of real property vs. personal property will help. And when in doubt it is personalty, being
most often the advantageous and conservative answer.