Balance sheet / P&L question

mobile home university
1

How are ya’ll classifying the transactions related to the make ready costs in regard to new trailers?

There are three main purchases I’m not sure how to handle which are porches / steps, skirting, and setup / anchoring costs.

Are you expensing those purchases out on the P&L or putting them on balance sheet? If you are putting them on them balance sheet, what GL account are you using?

Do you lump those costs in to the home or is there a separate line they you place them?

In my opinion although those transactions are less than $2500 separately, they collectively add up to more than $2500 and she be included with the value of the home.

In the event we have to replace skirting on a single home or porch in the future, we would just expense it out.

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I line item them all and let my accountant decide what is best. Every year is different for us and some years we need to take it all in one year and some years we need the depreciation.

3

It depends on how you plan on treating the home.

If you plan to keep the home as POH, you need to capitalize the costs and depreciate them over 27.5 years. I.e., they go on the Balance Sheet. This would be a Fixed Asset account. GAAP structure suggests a 1500-1799 account number.

If you plan on fixing and flipping, then you record the costs under an other assets account, “Mobile Home Inventory Account”. Technically, you need to record the expenses for that unit in the MH inventory account, and when you sell the unit, the expenses get transferred to Cost of Goods Sold. The MH inventory account would be an inventory asset account, so you could use 1400-1499.

There’s technically and practically. In practice, I expense all the home setup and rehab costs as they occur, and then when the unit sells, I book the profit as ordinary income. The IRS could squawk at me for doing it that way, but the net outcome is the same: I just get a little more write-off up front, and I pay all the taxes owed anyway.

For Example:

MH Inventory Asset (Inventory asset account)

$15,000 (to buy unit)

MH Set Up and Installs (expense account)

$30K in expense.

Home Sells for $55K

I book $40K in home sales income (ordinary).

If the home rehab rolls from 2026 to 207, I get to write off those expenses a little early, IE I write off the $30K in 2026, but the home doesn’t sell until 2027. So I get the tax savings from the $30K in expense in 2026, but then I pay it all back in 2027. I don’t think the IRS is going to make a big stink out of that. So long as you keep track of it all and book the sale as ordinary income, you’re fine.

You could get into trouble if you try to write off the expenses on your ordinary income, but don’t sell the unit for 12 months and then try to book the profit from the sale as a capital gain. That would be a no-no as you’d be “gaming” the system. IE writing off the expense from a higher tax rate but booking the profit at a lower tax rate. Don’t do that.

4

I would probably capitalize those initial setup costs as part of the home’s cost since they’re necessary to get it ready for use. Later replacements like new skirting or a porch repair, would make more sense as operating expenses. I’m interested to hear how others handle it in practice.

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  1. Is the questions for tax accounting / reporting or bank / financing or pure GAAP as the answers differ.

  2. Unless you have some sort of public debt / sec requirement why do anything but tax accounting. It can be converted to cash accounting pretty simply for bankers and investors.

  3. Also, most / all of those sound like 15 year assets(land improvements, if not attached to the home) and possible 100/% immediately deductible.

  4. A cost set study may be worth the expense if you have a large enough portfolio.

  5. See recent articles on mobile homes treated as equipment and not 27.5yr property if wheels, axles and tongues remain.

The BBB has options not before available

Lastly consult your tax cpa / lawyer for answers you can rely on v folks n message boards;)

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