Park Purchase Price Allocation for POH's


#1

I am purchasing a MHP with quite a few POH’S (All rentals, NO RTO’s). Counsel has advised me to allocate some part of the Purchase price of the park to the POH’s. Should I want that to be a low price (ie $100/ home) or a higher price (ie $2500/ home). Does anyone have advice of which would be better and why? Many Thanks - Tim


#2

Tim, there are a couple of considerations, however typically I would advise assigning as high a value to your POHs as possible. I do not work in tax or law however, so take my suggestion with a grain of salt.

  1. Assigning a higher amount to POHs likely lowers the allocation to land (can’t depreciate) as the underground infrastructure has a more concrete value (no pun intended).
  2. Real Estate Taxes: assigning a higher price to POHs may yield a lower assessed value for real property and thus a lower tax bill. Even if you are on the hook for personal property tax as well, I hope you plan to sell the homes in which case that tax goes away once you sell them.
  3. If you eventually sell the homes, assigning a lower value to them may cause you to recognize a gain on the sale. It would be best to avoid paying capital gains on the sale of the MHPs.

There are likely some considerations that I’m missing, however I hope this helps.


#3

Good points above.

We went with $5,000 per POH (Homes in the '80s-90s)

A disadvantage to a higher allocation to Mobile Homes is the slower depreciation schedule of 27.5 years than the park infrastructure and goodwill which averages 15 years.

Seems like goodwill lowers property taxes and is amortized over 15 years. Win-Win?