Mobile Home Depreciation Rate: What the IRS Actually Allows

Understanding the recovery period for your MHP assets is only half the equation. The other half is the depreciation rate — how much of the asset’s remaining basis you can deduct in each specific year of the recovery period. The rates are not uniform. They vary by asset class, depreciation method, and which year of the recovery period you are in.

For mobile home park owners, getting the rate right matters just as much as getting the recovery period right. A 5-year asset depreciating at the correct 200% declining balance rate produces dramatically different year-one deductions than the same asset mistakenly placed on a straight-line schedule.

This post breaks down the actual IRS-allowed depreciation rates for each MHP asset class, explains what the rates look like year by year, and explains how bonus depreciation changes the effective first-year rate for qualifying assets.

Three Depreciation Methods, Three Rate Structures

Under MACRS, the depreciation method determines the rate structure. Different asset classes use different methods, and the method determines how aggressively you depreciate in the early years versus the later years.

200% Declining Balance (5-year property — POHs): The 200% declining balance method depreciates at twice the straight-line rate each year, applied to the remaining (undepreciated) basis. You switch to straight-line when straight-line produces a higher deduction. This front-loads deductions, meaning you recover more of the asset’s cost in the early years.

150% Declining Balance (15-year property — land improvements): Similar in structure to 200% DB but at 150% of the straight-line rate. Also front-loaded, also switches to straight-line at the optimal crossover point.

Straight-Line (27.5-year and 39-year real property): The same percentage deducted each year over the recovery period. No front-loading. Consistent and predictable but the slowest cost recovery of the three methods.

The Half-Year Convention and How It Affects Year-One Rates

Before looking at specific rates, you need to understand the half-year convention. Under MACRS, 5-year and 15-year property is typically subject to the half-year convention, which treats all property placed in service during a year as if it was placed in service in the middle of that year — regardless of the actual acquisition date.

This means even if you acquired a POH in January, you only get half a year’s depreciation in year one. And even if you acquired a home in December, you still get the same half-year of depreciation. The flip side is that you get a half-year of depreciation in the year after your recovery period ends — which is why 5-year property actually spans six tax years of depreciation, and 15-year property spans sixteen tax years.

There is an exception: the mid-quarter convention applies if more than 40% of the total depreciable property placed in service during a year (excluding real property) was placed in service in the last three months of the year. In that case, each asset is treated as placed in service at the midpoint of the quarter in which it was actually placed in service. This is an important calculation that your CPA must evaluate each year.

Year-by-Year Rates for 5-Year Property (POHs)

The MACRS percentage tables in IRS Publication 946 provide the exact rates for each year of the recovery period. For 5-year property under the 200% declining balance method with the half-year convention, the rates are:

Note that these percentages are applied to the original cost basis of the asset each year — not to the declining balance. The declining balance calculation is built into the percentages themselves in the MACRS tables. The Year 6 entry represents the final half-year deduction, which is why 5-year property technically depreciates across six tax return years.

Year-by-Year Rates for 15-Year Property (Land Improvements)

For 15-year land improvements under the 150% declining balance method with the half-year convention, the MACRS percentage table produces the following rates:

These percentages are drawn from the IRS MACRS table for 15-year property. For precise year-by-year percentages, refer to Table A-1 in IRS Publication 946.

How Bonus Depreciation Changes the Effective First-Year Rate

The MACRS percentage tables above represent the baseline depreciation rates without bonus depreciation. When bonus depreciation applies, the effective first-year rate is dramatically higher — potentially much higher than the 20% shown for 5-year property in Year 1.

Bonus depreciation is applied first, in the year the asset is placed in service. The applicable bonus percentage is applied to the full unadjusted cost basis of the qualifying asset. The remaining basis after bonus is then depreciated under the normal MACRS schedule for the remainder of the recovery period.

For example: if the applicable bonus rate for your tax year is 60% (reflecting current law for 2024), and you place a POH in service, you first take 60% of the cost basis as a bonus depreciation deduction. The remaining 40% of the basis then flows through the 5-year MACRS table, with Year 1 (of the regular MACRS schedule) producing approximately 20% of that reduced basis. Your total first-year deduction is 60% plus 20% of 40% — or roughly 68% of the original cost basis in year one.

Why the Rate Matters as Much as the Recovery Period

Park owners sometimes focus exclusively on the recovery period — 5 years versus 27.5 years — without fully appreciating that the depreciation method (and therefore the rate structure) is equally important.

Consider a simplified illustration using percentages only. A 5-year asset on the 200% DB schedule produces 52% of its total cost basis as deductions in just the first two years (20% + 32%). A 27.5-year asset on straight-line would produce approximately 7.3% of its basis in the same two years. The rate structure, not just the recovery period, determines the actual tax benefit in each specific year.

This matters most in the early years of ownership, when the MHP is generating income that needs to be offset and when the time value of money makes early deductions most valuable. A dollar of deduction today is worth more than a dollar of deduction in year 15. The declining balance methods for 5-year and 15-year assets are structured specifically to deliver value early.

Straight-Line Rates for Real Property

For completeness: 27.5-year residential real property depreciates at approximately 3.636% per year under the straight-line method, with a slightly lower rate in year 1 and year 28-29 due to the mid-month convention. The exact percentage varies slightly based on the month the property was placed in service.

39-year commercial real property depreciates at approximately 2.564% per year, again subject to mid-month convention adjustment in the first and last years of the recovery period.

These low annual rates are why pulling assets into the 5-year and 15-year classes — through correct identification or a formal cost segregation study — creates such a meaningful difference in your annual tax position. The rates are four to seven times more accelerated in the early years for 5-year property compared to 27.5-year property.

The Interaction Between Rate, Recovery Period, and NOI

MHP owners typically have strong NOI — that is the primary driver of park valuations at cap rate. But strong NOI means real taxable income that needs to be managed. Depreciation is the primary non-cash deduction that shields MHP cash flow from current income tax, and the rate structure determines how much of that shielding occurs in the critical early years of ownership.

When you acquire a park and immediately deploy correctly structured depreciation — correct asset classification, correct recovery periods, correct methods, and bonus depreciation where eligible — the result is front-loaded deductions that can substantially offset the income generated by the park in the early years. As the deductions naturally decline (following the declining balance rate curve), the park has often appreciated and you are positioned for a tax-advantaged exit.

This interplay between depreciation rates, NOI, and exit strategy is exactly what strategic tax planning for MHP owners is designed to coordinate. Filing the return correctly is step one; building a multi-year plan around the rate curve is step two.

For more on how these rates flow through your financial statements, see our guide to MHP financial reporting. To understand how the rate structure interacts with cost segregation studies, see our post on cost segregation for mobile home parks.

Frequently Asked Questions

For the official MACRS percentage tables referenced in this post, see IRS Publication 946 (Appendix A — MACRS Percentage Tables).

This content is for educational purposes only and does not constitute tax or legal advice. The MHP Accountant recommends consulting a qualified CPA for advice specific to your situation.