Editor’s Note: This article was originally published March 28, 2023 and has been fully updated in August 2025 to reflect new bonus depreciation rules and cost segregation strategies for mobile home and RV park owners based upon the One Big Beautiful Bill that has brought back 100% bonus depreciation. The strategies outlined below remain highly relevant and can lead to significant tax savings in 2025 and beyond. As always, please consult with your own tax advisor to see if you can benefit from the strategies discussed here.
We all know that mobile home parks and RV parks kick off tremendous cash flow for the owners. It’s a phenomenal real estate investment. There are many different groups of investors who have been trying to buy as many of these parks as they can get funds to do so. In part what they do is they buy these and then immediately cost seg them for massive income tax savings. Now with 100% bonus deprecation back due to the OBBB, new acquisitions of mobile home and RV parks will provide a tremendous depreciation expense. Often times we see between 60-80% being depreciable in year 1 with these parks (net after backing out the land value since land cannot be depreciated).
If you’re reading this blog post you probably already have a pretty good idea about cost segregation, but in case you don’t, cost segregation is a tax planning strategy where the owner segregates or reclassifies real property into shorter class lives. This allows the owner to take a bigger tax deduction earlier in the ownership of the property.
Mobile home parks and RV parks are some of the best assets for cost segregation. I will often get asked…”how might a specific property do with cost segregation?” I can usually give them a ballpark figure and then have our team run an estimate but other than C-stores and tunnel car washes, there isn’t another asset class that performs as well with cost segregation as does a mobile home park or RV park.
It’s very common for us to see 50-80% of the overall cost be able to be accelerated – i.e. depreciated in the first year of ownership. Let’s say you buy a mobile home park for $2.5 million and maybe the land is estimated to be worth $500,000. That leaves $2 million in cost basis. We would run an estimate for you and note that you could expect $900,000 – $1,500,000 in increase accumulated depreciation expense. But the actual results might reach as high as $1.7 – $1.8 million. Of course we would not know that until we completed the study. So what happens in these situations is many times these owners have other parks that kick off massive cash. They have big tax liabilities because of that. But now they buy this new park, cost seg it and get a $1 million tax deduction in that first year of buying the new mobile home park. They may not need that $1 million depreciation expense to offset the income from this newly acquired park but they do need it to offset the other income from their other parks and properties. And if you end up with more depreciation than you can use, it does just stay on your books as a loss carryforward. You will just eat into that depreciation in the next year and maybe even the following year as needed until the loss is exhausted. A cost segregation study like this might cost somewhere in the neighborhood of $5,000 – $7,000 depending upon the complexity of the property.
What kinds of property can be accelerated? Below is an example of what you might see in a cost segregation study for a mobile home park. If owners have trailer park units that they own, those usually are identified as 5 year class life property. Some owners have us calculate that value while others will put their own values on their trailers and keep them out of the study. In the study noted below, the owner would be able to accelerate $2,141,369.70. At a 37% federal income tax rate, that would be an income tax savings of $792,306. 83% of the cost of the property was able to be reclassified into shorter lives of 5 and 15 years. With 100% bonus depreciation, he was able to take all of this in year 1. I don’t know what this study cost but let’s say it was $6,500 which is an expense – not capitalized cost. That $6,500 after tax is $4,095 making the ROI 193:1….that’s 19000% return on investment. Crazy but it’s legit.
If you’d like to learn more about cost segregation or would like us to run an estimate for you, please reach out. We are happy to run numbers for anyone no matter where you are. There is no charge and no obligation. I can study properties anywhere in the United States and am happy to help.
Be sure to check out the new cost segregation calculator that we recently launched. Scroll down on this page at www.CostSegCalc.com and plug in the information for your asset. You do not need to give us an email to see the results. You will have to reach out to get an official quoted price.
