I have a Park LLC and a Property Management LLC. I put the mobile homes inside the property management LLC.
How do I put these on my LLC tax forms? I have IRS forms 1065 and 8825. Is a mobile home without land considered rental property? Is the property type single family, commercial or other? I assume I depreciate over 5 years.
Find a qualified accountant. No one on here is likely to give you tax or legal advice.
LLCs can be taxed as corporations, partnerships, or disregarded entities depending on how you set it up. A CPA should be able to guide you. I would think this is a matter very unique to you and it would be difficult to give general guidance in this matter. Additionally, I would be reluctant to take such specific tax advice from a public forum.
I am not a CPA, but in my experience, you should create a new Current Asset Account in your accounting software. In this LLC, I chose the name “Inventory Assets.” Then, I created a child account under the parent account of Inventory Assets with the description of each home. For example, “LOS #1” stands for “Live Oak Springs Space #1.”
As you acquire homes, I also suggest you add the date you acquired them either in the name of the Child Account or in the Notes in your Accounting Software. This is to help your tracking. Tracking is necessary because if you sell a home after 12 months and one day after the purchase, you get taxed as a capital gain instead of ordinary income.
“For tax purposes, the U.S. Internal Revenue Service’s general depreciation system guidelines give buildings or structures, including a mobile home, an estimated useful life of 27.5 years. So the mobile home is more considered a building/structure than personal property.”
The article later states that one could argue an MH can use a 5-year Depreciable life. If it were me, I’d go with the 5-year life, especially if I planned on selling them, i.e., fixing and flipping.
Source:
https://www.justanswer.com/landlord-tenant/jgpyy-depreciation-schedule-mobile-home.html#:~:text=For%20tax%20purposes%2C%20the%20U.S.,building/structure%20than%20personal%20property.
You should use straight-line depreciation with either a 5-year life or a 27.5-year life. To do so, you take your cost basis and divide it by the number of years you choose to depreciate the Unit.
You must create another Fixed Asset account for “Accumulated Depreciation.” Each year, you must run the calculations for all your depreciable assets and make accounting entries to ensure you are crediting and debiting the correct accounts for the proper amounts. This is where you should rely on a CPA.
You must also create an expense account called Depreciation Expense.
Here is a screenshot of my Accumulated Depreciation Account.
Screenshot of Depreciation Expense:
While I am not a CPA, I can explain what and why. You depreciate the asset to get a Non-Cash expense/loss; You keep track of the Accumulated Depreciation because if you ever sell the property, then the Accumulated Depreciation you expensed gets added back to your ordinary income. Each Child account should have an entry for what you depreciated each year. That way if when you sell LOS #1 in year 2, you know exactly how much you will need to pay ordinary income tax vs how much capital Gains.
Simple Example.
12/01/2023 You buy an MH for $50,000
You choose a 5-year Depreciable life (we are going to ignore the Trump Tax Cuts for this example)
12/31/2023, you record $10,000 in depreciation expenses and add that amount to your Accumulated Depreciation account.
On 12/31/2024, you recorded another $10,000 in depreciation expense, the same as 2023
06/01/2025 You sell the Unit for $80,000
Now you must record a Capital Gain of $30,000 and a depreciation recapture of $20,000 in your books.
You will reduce your accumulated depreciation account by $20,000 and close the fixed asset account for the Unit to Zero.
I have two extra income accounts: MH Sales Ordinary Income and MH Sales Realized Capital Gain. This makes my life more manageable for tracking purposes.
I hope this helps.
Wow SDGuy! That’s quite an explanation. Clearly this can be a complicated topic and I would caution that a CPA should be consulted as the correct answer could be different for each company or person, and may even vary depending on what software you use. I do believe the homes are Fixed Assets of a long-term nature and not current assets which are reserved for those expiring in less than one year.
Just as you are doing we used to put each MH on our balance sheet as its own general ledger account, but due to limitations in Rent Manager, we are finding that is not the best way. To work out the depreciation schedule, there is an advantage to have one fixed asset account called Mobile Homes, yet each home is separately tracked as an asset in the Asset management portion of Rent Manager. Thus each home is not on the balance sheet independently, but all mobile home values add up to the Mobile Home GL balance.
I would consult with a CPA for tax purposes. But I don’t undertand why you’re putting Park Owned homes under the management LLC. All POHs would go under a separate Homes LLC.
So you would normally have 1. Holding Company which owns 2. Parks LLCs for each park 3. Management LLC (not owned by holding company) 4. Homes LLC (not owned by holding company.) I created a little diagram- PDF attached. I don’t know of anyone putting homes under Management LLC but maybe there is a justification I’m not aware of. I’d consult a CPA about taxes.
MHP LLC Structure Flowchart.pdf.pdf (43.7 KB)
I think before giving advice on what types of entities are needed, each person has to determine what the purpose of thete LLC is. For example, if you have a Park LLC and separate Homes LLC, what is your goal for this? Are you trying to separate liability, are you trying to be able to legally say we have no POHs, etc. Once you know what you are trying to achieve, you can then select the structure that meets your needs.
For example, at one point we had homes in the same LLC as the park. Then the insurance company would ask how many POH we had, and they did not like the number. So then we transferred the POH to a homes LLC and said we have 0 POH. Insurance company was happy. However, vacant POH then became taxable because to be considered “inventory” and not subject to property tax, the home must be owned by the same owner as the community. Bottom in that case is that we had to choose the least of the evils.
It would be helpful if you can explain WHY you chose your structure and not just propose a structure. This, of course, is a much bigger issue than a tax issue.
