Depreciation Schedule for Mobile Homes


#1

Friends -

It is time for me to (finally) get my 2007 taxes done. I have a few MHs that I’ve rented and a few that I’ve ‘sold’ on lease-options. In all cases the titles are in my (LLC’s) name and I’m entitled to the depreciation.

What is the correct depreciation schedule for a mobile home? Most of my mobile homes I purchased used; they date from 1996 - 1999, so they are already 10 years old. My accountant has said he believes the standard real estate depreciation schedule of 27.5 years is applicable to mobile homes, but that sounds way to conservative for an asset that is ‘wheel estate’ not ‘real estate.’

Any advice on what is the ‘correct’ depreciation schedule for used MHs?

Many thanks,

-Jefferson-


#2

Jefferson,

I was hoping that John Hyre would respond on this. He believe’s that a 15 year depreciation schedule for used mobiles would pass on an IRS audit due to the fact that the mobile is personal property, not real estate.

The most conservative route is 27.5 years, but 15 years would be the way to go for an aggressive investor.

Steve


#3

Friends -

I’ve just spoken with John Hyre (who is my accountant and who originally recommended the 27.5 year depreciation schedule).

John now feels we can go with a 5 year depreciation schedule because the MHs are ‘personal property’ used in the business and the 5 year schedule is consistent with the IRS’ rulings for depreciating such non-real-estate ‘personal property.’

John did warn me that any audit costs would be on me, and I’ve accepted that risk; but he feels the IRS rulings on MHs are sufficiently vague that a 5-year depreciation schedule is defendable (especially for MHs not permanently attached to the land with a proper foundation).

In my layman’s view, 27.5 years is just way too conservative for MHs - especially used ones. Such ‘wheel estate’ is more like Hertz’s rental car fleet or FedEx’s truck fleet than real ‘real estate.’ Your mileage may vary. : )

I’d still welcome anyone else’s input on this matter. I know of one other investor who uses a 7 year depreciation schedule…

Thanks everyone,

-Jefferson-


#4

Some comments (NOT a complete treatise of all the cases or laws involved) to help clarify the issues presented. First the narrow issue:

Revenue Ruling 87-56 sets forth the periods over which property is to be depreciated. Congress set the basic terms in Code Section 168 and delegated the details to the IRS. As long as the IRS does not contradict Congress, its determination of the details will be upheld by the courts.

Internal Revenue Code Section 168(e)(2)(A)(i) RESIDENTIAL RENTAL PROPERTY. --The term “residential rental property” means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units.

In Conference Committee Report on theTax Reform Act of 1986, September 18, 1986, 99th Congress, Congress clarified that for purposes of Code section 168, mobile homes are to be treated as residential rental property for depreciation purposes, specifically:


#5

We bought 1982 and a 1983 used mobile homes as rental property. Paid $16,800 for both and spent $53.7K to improve them. Will the 27.5 yr depreciation rule apply to them?


#6

Yes. I know it sounds absurd, but such is tax law. Although mobile homes are a vehicle, they are ‘housing’ and are subject to that long 27.5 year depreciation schedule even if they are decrepit and won’t last that long. If/when you send them to the dump, you just write-off any remaining value and take a one-time loss.

That said, I’ve just discovered a very, very significant tax loophole called the De Minimis Safe Harbor Election. I’ve run this by my CPA; he researched it and agrees with the implications I lay out below. (I just wish he had discovered this himself back in 2016 when it came into effect and told me about it…!)

Tax law now says that any line item on an invoice that is $2,500 or less can be expensed.

So whereas you might otherwise receive an invoice for:
$10,000 - Total for Repairing Mobile Home

You now need to ask your vendor to break out his work components so that each line item is $2,500 or less, like this:
$2,500 - Painting House
$2,500 - New Roof
$2,000 - New Floors in Bedrooms
$2,000 - New Floors in Kitchen and Livingroom
$1,000 - Labor

$10,000 - Total for Repairing Mobile Home

As long as the individual line items are $2,500 or less, they can be expensed. Not only will this greatly reduce your taxes, it will simplify your bookkeeping because you no longer need to keep depreciation tables. You can expense everything.

Unfortunately one can’t go back and re-file previous years. You need your CPA to make this election at the time your taxes are filed. So your existing depreciation tables are basically ‘fixed’ and you’ll just run them out.

I’ll be doing a podcast on this shortly:

To your continued success,

-jl-


#7

But probably a bad decision to spend $53.7k rehabbing two old mobile homes. You could have bought two brand new mobile homes for what you spent purchasing and renovating the old ones…

But at least you get to expense all that rehab money…

My 2 cents worth,

-jl-


#8

We planned on sweat equity to fix them up but cancer interrupted our plan. Had to hire a contractor.


#9

Thank you! We bought most of the materials from Home Depot. Paid the contractor labor separately. Most of contact labor weekly invoices are less than $2500.


#11

Hate to bring up old threads but here’s a question: if you bought the home itself for less than $2500, would that fall under safe harbor?

We recently bought one for $1100 and it seems absurd to depreciate that.


#12

maybe I missed it but i have yet to see a concrete CPA answer to the original question regarding depreciation. Lots of ‘I thinks’ but didn’t see anything specific from a tax professional. Did I miss it?


#13

Mobile home used as a dwelling is in the 27.5-year class.


#14

I found this very useful to review. Ctrl+F and look for the words ‘Mobile Home’. It will point you to only two references. But the first is that Mobile Homes fall under Residential Rental Property, which are in the 27.5 year class.