Narrative
In 2025, the owners of a mobile home park in Freeport, 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 facility was developed with high-quality 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 $1,811,378.70 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.
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Asset Allocation
5-Year Class Life
Total Depreciation Allocation: $396.17 Percentage of Total Depreciable Basis: 0.02%
5-year class life property consists of tangible personal property found across the facility that are eligible for a 5-year recovery period.
Minor equipment and specialized personal property components.
7-Year Class Life
Total Depreciation Allocation: $188,713.56 Percentage of Total Depreciable Basis: 10.42%
7-year class life property includes certain furniture, fixtures, and specialized equipment not classified as 5-year property, allocated across the park's operations.
- General-purpose fixtures and utility-related specialized equipment.
- Systems and components classified under the 7-year ADR class.
15-Year Class Life
Total Depreciation Allocation: $1,578,205.49 Percentage of Total Depreciable Basis: 87.13%
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.
- Major utility infrastructure, site lighting, and fencing qualifying for accelerated recovery.
27.5-Year Class Life
Total Depreciation Allocation: $44,063.48 Percentage of Total Depreciable Basis: 2.43%
27.5-year class life property includes structural components of residential buildings or permanent structures within the park classified as § 1250 residential real property.
- Permanent residential structures and associated building cores.
- Long-term real property components not qualifying for accelerated recovery.
Class Life Details:
Summary
The cost segregation analysis for the mobile home park in Freeport, Illinois, identified assets eligible for shorter recovery periods and documented their allocation across 5-year, 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, over 97%, into accelerated recovery periods.
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.
Learn how cost segregation can boost your financial bottom line by maximizing tax savings and increasing liquidity. Reach out today to schedule your complimentary consultation.
