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A mobile home community or RV park is the one property type where almost all of the depreciable value sits outside any building. Roads, pads, water and sewer runs, electrical distribution, pedestals, lighting, fencing and drainage are the asset, and they are depreciable land improvements, most of them 15-year property eligible for 100 percent bonus depreciation. Two things go wrong before any of that gets claimed: too much of the purchase price gets called land because the property looks like dirt, and whatever is left gets dropped on a 39-year line. The catch is that the land number has to be defensible in both directions, because an examiner who sees land pushed low to inflate the deduction will question every other line. Get the land allocation right and document the infrastructure component by component, and a park owner usually has a larger first-year deduction per dollar of basis than the owner of an office building.
Clay Hanley bought a 70-pad mobile home community on the east side of Modesto, California, in March 2025 for $2,300,000. The park owns no homes. The residents own those and pay lot rent. What Clay bought was 14 acres, a paved loop road, seventy concrete pads, a water main with a lateral to every lot, a sewer collection system, an electrical distribution system with a pedestal at each pad, pole lighting, a chain-link perimeter fence, a drainage swale, a 900 square foot office, a laundry building and a playground.
In April he asked his accountant what the depreciation would look like. The answer was short. "There are hardly any buildings here. Most of this is land, and land does not depreciate." The accountant put $1,600,000 on the land line and $700,000 on a 39-year building line. First-year deduction at the March mid-month table rate of 2.033 percent: $14,231. At a 37 percent federal rate, about $5,265 of tax.
The accountant was half right. Land does not depreciate. The conclusion was wrong, because it came from looking at the property the way a person looks at it, as a field with some trailers on it, rather than the way the tax code looks at it. Clay had bought several thousand feet of buried pipe, a full electrical system, seventy pads, a road, lighting and fencing. None of that is land. All of it wears out. Most of it is invisible, and the tax code has no rule about what you can see from the road. Clay is illustrative; the rules and the arithmetic are real.
On an apartment building, the land allocation is one input. On a park it is the dominant variable, and it fails in both directions.
The mechanism is simple. Depreciable basis is the purchase price less the value of the land. Every dollar assigned to land produces no deduction, ever. On a property that reads as mostly dirt, an assessor working from a drive-by or a lender's appraiser working from comparable land sales can assign a very large share to land, and the owner inherits that number without questioning it.
But the raw ground under a developed park is not what the park is worth. Somebody spent real money turning a pasture into seventy serviced sites. The distinction the tax law draws is between the land itself and improvements to the land. Clearing and rough grading of raw ground are generally treated as land costs, because they have no determinable life (Rev. Rul. 65-265). Grading and excavation done specifically for a road, a pad or a utility trench follow the improvement they serve. Roads, paving, pads, fences, non-municipal sewer and water lines, site lighting and drainage are land improvements, asset class 00.3 in Rev. Proc. 87-56, with a 15-year recovery period.
The number has to hold in both directions. Pushing land down to manufacture a bigger deduction is the fastest way to get a park study disallowed, and once the land number is discredited, the examiner has no reason to trust the component schedule either. The goal is the number you can support.
You do not need a professional to open this question. Your county assessor splits every parcel's assessed value into land and improvements and publishes it. Pull your card. If the assessor shows improvements at 40 percent of value and your depreciation schedule treats the park as 70 percent land, those two documents disagree, and the disagreement is worth money.
The appraisal from your purchase or refinance is the second source. Lenders require one, and it usually breaks value into land and improvements. Your closing file has it.
Neither document settles the question alone. An assessment ratio is built for property tax. An appraisal is an opinion written for a lender. A defensible allocation weighs the assessment, the appraisal, any allocation in the purchase agreement and comparable land sales together, and writes down the reasoning. But those two documents will tell you in ten minutes whether your park is being depreciated sensibly.
How any specific component is classified is determined by engineering and tax analysis of your property under the IRS Audit Techniques Guide and the tests the courts have set. These are the categories the analysis works through.
Site utility distribution. Water, sewer, gas and electrical systems running from the point of service out to each pad. On most parks this is the largest single improvement category, and it is entirely underground.
Pads, roads and paving. Concrete or asphalt pads at each site, interior roads, parking areas and driveways, with the curbs and the grading done for them.
Electrical pedestals and site service equipment. The metered pedestal at each site that delivers service to the occupant, examined on its own facts.
Site lighting, fencing and signage. Pole lighting, perimeter and security fencing, entrance features and signs.
Drainage and stormwater. Swales, culverts, retention areas and storm piping built as part of site development.
Amenity areas. Playground equipment, pavilions, pools, mail kiosks and their surrounding work.
The small buildings. Office, laundry, bathhouse, maintenance and storage structures, which contain conventional building components and are a minor share of a park's value. These buildings do not earn rent from dwelling units, so they are nonresidential, 39-year property.
RV parks add a layer: full hookups at each site, dump stations, a bathhouse with showers, often a camp store and a more developed amenity program. RV parks also raise a question mobile home communities usually do not. When average stays run under 30 days, the use is transient, and the buildings are nonresidential regardless of what the guests are doing in them. That characterization belongs with your CPA, and it touches more than depreciation.
These numbers are illustrative and rounded. They use a 37 percent federal rate. Your study determines your split.
The fully engineered and accounted study on Clay's park started with the land. The county assessment ratio, applied to his purchase price, put land at $610,000. The lender's appraisal put it at $590,000. The purchase agreement was silent. The study documented $600,000 as the land value and $1,700,000 as the depreciable basis.
A fully engineered and accounted study on a qualifying property typically identifies $200,000 to $450,000 in additional first-year federal deductions per $1 million of depreciable basis. Parks land at the high end of that range because so little of the basis is building, and the study determines the actual share. Illustratively, if the study supports 35 percent of Clay's $1,700,000, or $595,000, as 15-year land improvements and 5-year site equipment:
Clay acquired the park in March 2025, after January 19, 2025, so the One Big Beautiful Bill Act's permanent 100 percent bonus depreciation applies to the $595,000, with no proration. First-year deduction: $595,000 plus $22,465, or $617,465. At 37 percent, that is $228,462 of federal tax.
His accountant's version produced $14,231 and $5,265 of tax. The difference in the first year is $603,234 more deduction and $223,197 more cash, on the same park, with the same pipe in the ground. The only thing that changed is that somebody counted what Clay actually bought.
Two conditions sit under that number. Lot rent is rental income, so the loss is passive unless Clay qualifies as a real estate professional and materially participates in the park, which a full-time owner-operator can do, or has passive income to absorb it. And Clay and his wife file jointly, so Section 461(l) caps the business loss they can deduct against other income at $626,000 for 2025 ($313,000 single), adjusted annually; for 2026 the cap is $512,000 joint and $256,000 single. The $617,465 clears the 2025 joint cap; a single owner would carry $304,465 forward as a net operating loss. Our article on the excess business loss limit has the detail.
Waiting has a price too. Had Clay filed his 2025 return on the accountant's schedule and caught the problem in 2027, the deduction would still be available through a Form 3115 catch-up, but two years late. At a 37 percent rate, $223,197 of federal tax would have sat with the Treasury for two years while Clay paid interest on the acquisition loan. On a park, the lot rent is steady and the deduction is front-loaded, so the first year is the one that matters most.
Clay bought an existing community and the study had to work backward from one purchase price. A developer who builds a park is in a better documented position.
Take an operator building a 90-site RV park from raw ground for $4,500,000. Land first, as a separate closing. Then clearing and rough grading. Then the road base and paving. Then water and sewer mains with a run to every site. Then the electrical service and ninety pedestals. Then a bathhouse, a small office and store, lighting, fencing, landscaping and a pavilion.
Every one of those is a separate contract with a separate price, billed by an unrelated party at the time. The schedule of values broke the project into line items because that is how construction lending works. On a built park, the land question is nearly self-proving: the developer wrote a check for the dirt and everything after that is improvement spending with an invoice behind it.
Developers throw these records away within a year or two of closeout. If you are building or expanding, keep the schedule of values, every pay application, the subcontractor contracts, the change orders and the closeout breakdown. The same goes for adding twenty sites to an existing park or replacing a failing water main. Those invoices are the strongest documentation a study can stand on, and burying them in one line on the depreciation schedule throws the benefit away.
The estimated study assigns a percentage by building type. A park does not have a building type, and the estimate has nothing to say about a property whose value is buried pipe and poured concrete. A fully engineered and accounted study works component by component under the first two approaches the IRS Audit Techniques Guide describes: Approach 1, detailed engineering from actual cost records, which the guide calls the most methodical and accurate, and Approach 2, engineering with documented estimates reconciled to actual cost, which is what an acquired park requires. The land allocation is documented with its sources. Each utility run, each stretch of road, each pedestal is costed and classified. The result is a component schedule your CPA can import and the engineering support behind it, signed by credentialed professionals, which an examiner can trace. Cost Seg America defends it for as long as you own the park, no time limit, no hour cap, no additional fee, with written responses and participation in examiner calls alongside your CPA.
Accepting a casual land allocation. On this asset class the land number drives everything. A number taken from a drive-by assessment or a lender's land-comp approach, with no analysis, is the most expensive mistake available, and it is the most common.
Assuming invisible means non-depreciable. Buried utility distribution is usually the largest improvement category on the property and the easiest to miss, because nobody sees it.
Treating the park as if it were its office building. The small structures are a minor share of value. A study that focuses on them has missed the asset.
Pushing the land value down to inflate the deduction. Unsupported allocations invite disallowance and take the credibility of the whole study with them.
Burying expansion and replacement costs in one line. New sites and new mains come with itemized invoices. Using them produces a stronger result than any reconstruction.
There are parks where the numbers do not work, and you should hear that before you spend money.
A small park with under $180,000 of depreciable basis after land does not have enough to analyze; the fee is too large relative to the result.
A park bought as a land play, where the plan is to redevelop or flip within a year or two, runs into recapture. Land improvements are Section 1250 property, and when 100 percent bonus has been taken, the depreciation in excess of straight-line is recaptured as ordinary income at sale, with the rest taxed as unrecaptured Section 1250 gain at up to 25 percent. On a short hold, the recapture can outweigh the time value of the deduction.
An owner whose losses are passive and who cannot use them banks a carryforward rather than a current deduction. The deduction is real and generally frees up on a qualifying disposition, but delayed benefit is worth less than immediate benefit.
A park owned for twenty years has little remaining basis in the original improvements, though replacements and expansions since then may still be worth a look.
The proposal is free so you learn which of these describes you first. Turning away a park where the math does not work is part of the job.
Yes. Roads, pads, utility distribution, lighting, fencing and drainage are depreciable land improvements even though they sit outside a building. On a park they are usually the bulk of the depreciable basis.
The raw ground is land and does not depreciate. The money spent turning that ground into serviced sites generally does. Separating the two is the central determination in a park study, and it has to be supported with evidence.
From the county assessment ratio applied to the purchase price, an appraisal that splits land from improvements, an allocation in the purchase agreement, or comparable land sales, weighed together and documented. The study records the sources and the reasoning.
Water and sewer distribution on the property, serving the sites rather than a municipality, is generally examined as a 15-year land improvement. How a specific run is classified depends on your property's facts and the engineering.
Clearing and rough grading of raw land are generally treated as part of the land and do not depreciate. Grading and excavation done for a specific road, pad or utility trench follow that improvement and depreciate with it.
Yes, with two additions. RV parks carry hookups, dump stations and bathhouses, and when average stays run under 30 days the use is transient, which makes the buildings nonresidential. Your CPA should confirm the characterization.
Park-owned homes rented as dwellings are a separate asset from the site infrastructure and are handled on their own facts, usually as residential rental property. Tell the study team which homes the park owns so they are costed separately.
Considerably. Expansion work comes with itemized contractor invoices that document what each component cost, which is the strongest evidence a study can be built on.
No. A change in accounting method on Form 3115 brings the missed depreciation into your current-year return through a Section 481(a) adjustment, at the bonus rate that applied when you placed the park in service. No amended returns. Cost Seg America prepares the Section 481(a) computation and, for a separate fee, the Form 3115 itself; your CPA files it.
An examiner looks hardest at the land allocation, because on a park that is where the money is. A study that documents the land number from third-party sources and classifies the infrastructure line by line gives the examiner what the Audit Techniques Guide tells them to look for.
Pull your county assessment card and your appraisal and compare the land share to your depreciation schedule. Then send Jim Dougherty and his team the park address, the purchase price and date, the site count and whatever construction or expansion records you have. You will get a free proposal within 24 hours showing the estimated first-year deduction, the method, the timeline and the fee. The study is delivered in 30 days, with rush available. Call 1-888-365-5023 or email info@costsegamerica.com.
This article is educational and does not constitute tax advice for your situation; confirm the treatment with your CPA before filing.
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