Depreciation on a Mobile Home Park

What's depreciable in a mobile home park

Like all real property, the land itself is not depreciable. In a mobile home park, land often represents a large share of purchase price because the mobile homes are tenant-owned. The depreciable improvements typically include: concrete pads and hookups; roads and driveways; utilities infrastructure (water, sewer, electric, gas lines); perimeter fencing; a rental or management office; and any park-owned structures.

If the park owns the mobile homes and rents them to tenants, those homes may be depreciable as personal property — typically over 5 or 7 years — or as residential rental property if they are permanently affixed.

Recovery periods: 5, 7, 15, or 39 years

A cost segregation study on a mobile home park typically finds: 15-year land improvements (roads, parking, landscaping, utility distribution lines, fencing); 7-year personal property (certain tenant amenities); and 39-year nonresidential real property for permanent structures like a rental office or laundry building. Concrete pads and utility service connections may be 15-year or 39-year depending on their nature.

With 100% bonus depreciation available for property with a 20-year or shorter MACRS life, land improvements classified as 15-year property can be fully expensed in year one — a meaningful benefit given the high proportion of infrastructure cost in a mobile home park.

Land allocation is critical

Because mobile home parks are often land-intensive, the land-vs-improvement split dramatically affects how much of the purchase price can be depreciated. An independent appraisal or cost segregation study is the most defensible method. The county assessor's ratio (used for property tax) is sometimes used as a starting point but should not be relied upon exclusively for federal income tax purposes.

Why cost segregation is unusually powerful here

Mobile home parks are one of the asset classes where a cost segregation study produces the biggest proportional benefit, because so much of the value sits in 15-year land improvements rather than a 39-year building. In a typical apartment purchase, the bulk of depreciable basis is the structure itself, recovered slowly over 27.5 or 39 years. In a park, the 'building' component is often small — maybe an office and a laundry room — while roads, utility distribution lines, pads, fencing, and site lighting can make up the majority of the depreciable basis, and those are 15-year property eligible for bonus depreciation.

This is why a park with, say, $2 million of depreciable basis can throw off a far larger first-year deduction than a $2 million apartment building. A study by a qualified engineer identifies and documents each component, assigns it to the correct MACRS class (5-, 7-, 15-, or 39-year), and supports the allocation if the IRS asks. Given the dollar amounts involved, the study fee is usually a small fraction of the tax deferral it unlocks — but only a professional, engineering-based study will withstand scrutiny; a back-of-the-envelope split will not.

Bonus depreciation and the 100% restoration

Property with a MACRS recovery period of 20 years or less — which covers the 5-, 7-, and 15-year components a park generates — is eligible for bonus depreciation. Bonus had been phasing down (60% in 2024, scheduled to keep declining), but the One Big Beautiful Bill Act restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025. For a park buyer, that means the entire reclassified 15-year infrastructure slice can potentially be written off in the first year rather than over fifteen.

A simplified example: you buy a park for $3 million, allocate $1 million to non-depreciable land, and a cost segregation study assigns $1.4 million of the remaining $2 million to 15-year land improvements and $600,000 to a 39-year office/laundry structure and other real property. Under 100% bonus, the $1.4 million of 15-year property could be deducted in year one. That deduction can generate a large paper loss — subject, however, to the passive activity and at-risk rules that govern whether you can use it currently or must carry it forward.

The passive activity and material participation catch

A big first-year depreciation deduction is only useful if you can actually use it. Rental real estate is generally a passive activity under IRC § 469, so losses can normally offset only passive income — not your wages or business profits — unless you qualify as a real estate professional and materially participate, or the special short-term rental rules apply. Many park operators who are actively involved in management can meet the material participation tests, but a hands-off investor who hired a management company will likely have the loss suspended and carried forward until they have passive income or sell the property.

There is a wrinkle unique to parks: if you provide substantial services to residents (unusual for a pad-lease park, more common where the park owns and rents the homes), the activity can shift toward a trade or business rather than passive rental. And the at-risk rules under § 465 separately limit losses to the amount you have economically at risk — generally your cash invested plus recourse debt. Model how you will actually absorb the deduction before paying for a cost segregation study; the study is worth far less if the loss simply sits suspended.

Park-owned homes: personal property versus real property

When the park owns some of the homes and rents them to residents, the classification of those homes matters. A mobile or manufactured home that is not permanently affixed — sitting on piers or a temporary foundation, still technically movable — is generally treated as personal property depreciated over a shorter life (commonly 5 or 7 years, and eligible for bonus depreciation). A home permanently installed on a foundation, with the wheels and axles removed and title often surrendered to the state, looks more like residential rental real property depreciated over 27.5 years.

This distinction affects both your annual deduction and your recapture on sale, so document each home's status. Park-owned homes also create additional depreciable personal property inside them — appliances, HVAC, flooring — that a cost segregation study can break out. But park-owned homes come with operational headaches (repairs, turnover, tenant damage) that pure pad-lease parks avoid, which is one reason many investors prefer parks where residents own their homes and simply rent the pad.

Depreciation recapture when you sell the park

The flip side of accelerated depreciation is recapture at sale. Depreciation on the 39-year real property comes back as unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25%. Depreciation on the 5-, 7-, and 15-year components — the very ones cost segregation and bonus depreciation let you write off fast — is Section 1245 property, and that depreciation is recaptured as ordinary income up to the amount of depreciation taken, potentially at rates higher than 25%.

So a cost segregation study is primarily a timing and rate play, not a permanent tax elimination: you accelerate deductions (a real time-value benefit and possible bracket arbitrage) but convert some future gain into ordinary-rate recapture. Two strategies preserve the benefit — a 1031 exchange into another investment property defers the gain and recapture, and holding the park until death gives heirs a step-up in basis that can wipe out the deferred recapture entirely. Plan the exit alongside the acquisition, especially if you expect to sell rather than hold long term.

Utility reimbursements and submetering income

Many parks bill residents for water, sewer, or trash through submetering or a ratio utility billing system (RUBS). These reimbursements are taxable rental income reported on Schedule E, and the utility bills the park pays are deductible operating expenses — so the two largely offset, but both belong on the return; netting them off the books understates gross income and can distort your ratios. The infrastructure that makes submetering possible — meters, sub-meter wiring, and distribution lines — is depreciable, generally as 15-year land improvements or 5-/7-year equipment depending on the component, and can be picked up in a cost segregation study.

This matters for park economics because converting from park-paid utilities to resident-paid billing raises net operating income, which in a cap-rate-driven market directly raises the park's value (a form of forced appreciation). Keep clean records separating utility income, utility expense, and the depreciable cost of the metering infrastructure, since all three land in different places on your return and support different tax positions.

Frequently asked questions

Sources

• IRS Publication 946 — How to Depreciate Property
• IRS Publication 527 — Residential Rental Property

Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.

Related

• Rental Property Depreciation Calculator
• How to Split Land vs. Building Value for Depreciation
• Cost Segregation Calculator