Many commercial property owners are familiar with cost segregation as a tool to achieve faster depreciation of building components—all leading to valuable cost savings. Through cost segregation, which is the process of identifying and classifying subcomponents or units of property, investors and property owners can reduce tax liability and increase their bottom line. Cost segregation can apply to tangible property, land improvement, a building and its structural components, all of which includes mobile homes and RV parks.
According to the Urban Institute, the value of home prices have appreciated at a faster pace for mobile homes than they have for traditional properties. The affordability of mobile homes appeals to seniors wishing to downsize, young professionals needing more space than they can otherwise afford and those looking for inexpensive part-time property in the Sunbelt. As owners of RV parks retire in record numbers, investors have begun to buy mobile-home parks in earnest. At the same time, RV camping is increasing in popularity because of significant improvement of RV parks, including more amenities.
So, what does this have to do with cost segregation? There is a substantial opportunity for investors in these properties! Cost segregation identifies qualified real property that can be depreciated in as little as five, seven and 15 years.
Items such as utility tie-ins, gravel and asphalt driveways and lots, signage, landscape and pathways can all be accelerated for quick write-off under the existing tax rules. Additionally, some mobile homes, if movable, can also be depreciated in the first year. This means that the value of cost segregation on these properties is greater than ever.
If you purchase a $2.4 million property with a land value of $500,000, your tax basis would be $1.9 million. Without cost segregation this would provide annual depreciation of about $49,000 per year. However, with cost segregation you could see first-year depreciation as high as $950,000 to $1.8 million, depending on the property.
Engineered Tax Services identifies land value based on tax-assessed value, which can be as low as 20% and as high as 80%, something that investors should consider in a property acquisition. Property owners should take into account mobile homes they own and other structures on site of the RV park, such as clubhouses, laundry facilities and management quarters. A good portion of mobile home parks can be allocated as 15-year depreciation.
Most of the improvements in these properties qualify for 100% bonus depreciation, which means that 60%-80% of a property can be depreciated in the first year.
The IRS recommends that property owners and investors have an engineering-based cost segregation study to determine which portions of the property can accelerate depreciation. The benefits of the study are based on when the property was placed into service and updates made to the building in that time period. Keep in mind that cost segregation studies can be conducted for a previous year without amending that year’s tax return. A qualified engineer will use blueprints and cost reports to determine whether property can be reclassified for tax benefits.
An engineering-based Cost Segregation Study, performed by specialized experts, will ensure that all allowable property be approved by the IRS for accelerated depreciation. Even if you are depreciating in an accelerated manner, you may still be missing out on benefits. The staff of ETS consists of skilled professionals who can properly identify all opportunities available to you.
The engineering and tax professionals on the cost segregation team at Engineered Tax Services have helped real estate owners and investors significantly increase their cash flow by identifying and reclassifying assets of their building for faster depreciation. Request a Free Benefit Analysis to identify an estimated benefit and ensure a cost segregation study makes sense for your property.
To learn more about cost segregation studies for real estate owners and investors of mobile homes and RV parks, call Engineered Tax Services at (800) 236-6519 or visit our cost segregation page for more information.