Narrative
In 2025, the owners of a mobile home park in Marion, Illinois, undertook strategic tax planning to enhance their investment. The property consists of specialized residential infrastructure designed for commercial housing use and improved with extensive site systems and utility enhancements. The park was developed with durable materials and workmanship suited for long-term community operations.
The property features durable utility connections, specialized mechanical systems, and custom site improvements that support mobile home park functionality. Site elements include significant paved surfaces, landscaping, and infrastructure enhancements that add value and utility to the overall property. Each component was evaluated as part of a detailed engineering-based cost review.
The owners engaged Engineered Tax Services (ETS) to perform a comprehensive cost segregation study of the property. This study aimed to identify and reclassify specific assets to accelerate depreciation and optimize tax benefits. This case study outlines the cost-segregation strategy employed and its significant impact on the property's financial outlook.
Objective
The primary objective of the cost segregation study was to identify and classify the commercial property’s assets within the $1,800,000.00 depreciable basis. By analyzing and reallocating building and site components into appropriate depreciation categories under MACRS, Engineered Tax Services (ETS) aimed to accelerate depreciation deductions and enhance the property owner’s overall tax savings and cash flow.
Methodology
ETS utilized a detailed engineering-based approach, including:
- Site Inspection: A physical inspection to document all structural, electrical, and land-improvement components.
- Document Review: Analysis of architectural plans, contractor invoices, and accounting schedules.
- Cost Analysis: Allocation of construction costs across building systems, site improvements, and personal property.
- Depreciation Calculation: Application of IRS Revenue Procedures, Tax Court rulings, and MACRS recovery periods to maximize allowable deductions.
Asset Allocation
7-Year Class Life
Total Depreciation Allocation: $683,410.58Percentage of Total Depreciable Basis: 37.97%
7-year class life property includes certain furniture, fixtures, and specialized equipment not classified as 5-year property, which are integral to the park's operational systems.
- General-purpose fixtures and specialized equipment for park maintenance.
- Utility meters and specialized systems classified under the 7-year ADR class.
15-Year Class Life
Total Depreciation Allocation: $1,097,458.15Percentage of Total Depreciable Basis: 60.97%
15-year class life property consists primarily of land improvements and exterior site systems, which form the largest component of this study.
- Extensive site improvements including road paving, curbing, and pad enhancements.
- Utility infrastructure, site lighting, and fencing qualifying for accelerated recovery.
27.5-Year Class Life
Total Depreciation Allocation: $19,131.28 Percentage of Total Depreciable Basis: 1.06%
27.5-year class life property includes the structural components of residential buildings or permanent dwellings within the park classified as § 1250 residential real property.
- Permanent residential structures and their associated building cores.
- Structural elements of the park's residential units.
Class Life Details:
Summary
The cost segregation analysis for the mobile home park in Marion, Illinois, identified assets eligible for shorter recovery periods and documented their allocation across 7-year, 15-year, and 27.5-year categories. This engineering-based approach aligns the property’s components with appropriate MACRS class lives and provides the taxpayer with supportable depreciation schedules.
The total increase in accumulated depreciation from this study is generated by reclassifying a substantial portion of the depreciable basis, nearly 99%, into accelerated recovery periods of 7 and 15 years.
This result improves near-term tax efficiency and supports capital planning and reinvestment decisions. Engineered Tax Services provides audit-ready documentation consistent with IRS guidance and accepted engineering practices.
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