Buying a Mobile Home Park? The Tax Strategy Your Broker Won’t Tell You

You’ve found the park. The cap rate works. The lot rents have room to grow. Your broker has walked you through the deal economics, the rent comparables, and the infrastructure condition report. You’re ready to close.

What nobody has told you yet is that the tax decisions you make in the 30 days before and after closing can be worth more than everything you negotiated off the purchase price. This is the guide your broker doesn’t have — because it’s not their job to know it.

The Biggest First-Year Opportunity Most Buyers Miss

When you buy a mobile home park, you’re not buying one asset. You’re buying a collection of assets with dramatically different depreciation lives under MACRS: land (non-depreciable), land improvements like roads and utilities (15-year), personal property like park-owned homes and equipment (5-year), and any structures on site (27.5 or 39 years depending on use).

The purchase price you and the seller agree on is a blended number. How that price gets allocated across those asset classes — a process called purchase price allocation — determines the size of your depreciation deductions in years one through five. Get the allocation right and your first-year tax position can look dramatically different than a standard real estate deal.

Experienced MHP brokers like Glenn Esterson at MHP Brokers understand deal structure deeply, but the tax elections you make at closing — starting with how you allocate the purchase price — can be worth more than the discount you negotiated on the deal itself. No broker, however skilled, is positioned to give you that guidance.

Purchase Price Allocation: How It Works and Why It Matters

When you acquire a park in an asset purchase, the IRS requires both buyer and seller to use consistent purchase price allocations under the residual method defined in IRC Section 1060. In an asset deal, you and the seller must file Form 8594 and agree on how the total consideration is divided across asset classes.

As the buyer, you want as much of the purchase price allocated to short-life assets — personal property and land improvements — as can be reasonably supported. These assets generate the largest early-year depreciation deductions. This is a negotiation. It happens at the purchase agreement stage, not at the closing table. Once the agreement is signed with specific allocation language, your ability to optimize it is limited.

Entity Setup Before Closing: Don’t Close in the Wrong Name

This mistake is more common than it should be: a buyer closes on a mobile home park in their personal name or an existing entity, then asks their accountant about restructuring afterward. At that point, restructuring requires a taxable transfer — potentially triggering recognition events you could have avoided entirely.

The right time to set up your acquisition entity is before the purchase agreement is signed. For most MHP acquisitions, the structure looks like this: a new single-asset LLC holds the park, that LLC is owned by a holding company, and a separate management company handles operations and bills a management fee to the park LLC.

S-Corp elections, if appropriate, need to be made within 75 days of entity formation for same-year effectiveness. This is another reason the entity conversation needs to happen before closing, not after.

Bonus Depreciation on Acquisition Year: Your Largest Tax Lever

Under current law, bonus depreciation applies to qualifying property placed in service in the tax year — and for MHP acquisitions, significant portions of the park’s depreciable value can qualify. Roads, utility systems, fencing, signage, and park-owned homes all have the potential to qualify for accelerated treatment.

The acquisition year is typically your single largest bonus depreciation opportunity. You’re buying an entire park’s worth of qualifying assets at once, all placed in service on the day you close. A cost segregation study performed at or shortly after acquisition identifies and quantifies every qualifying asset — and that study directly feeds the bonus depreciation calculation on your return.

When to Order a Cost Segregation Study

The short answer: before you file your first return for the property. The better answer: as soon as you’re under contract, so the study can be completed and reviewed before closing.

A cost segregation study performed before closing gives you three things: a defensible asset classification that’s consistent with the purchase price allocation in your agreement, a first-year depreciation projection you can use for lender cash flow modeling, and a study completed by a firm that can review actual construction records and appraisal data before the transaction is complete.

If you acquired a park in a prior year and never did a cost segregation study, a lookback study via Form 3115 and a corrected depreciation schedule can recover the missed deductions in a single year without filing amended returns.

Due Diligence Tax Checklist: What to Request from the Seller

• Prior-year tax returns for the entity selling the park — to identify any deferred tax liabilities that might affect negotiating leverage
• Depreciation schedules on file — to understand how the seller classified assets, which informs your opening allocation discussion
• POH inventory with title documentation — to confirm which homes are truly park-owned vs. tenant-owned, and that titles are clear
• Any existing IRC Section 1031 exchange obligations — if the seller is in a 1031 exchange, the deal structure may be constrained
• Utility billing records — to determine whether utility income is billed as a pass-through or bundled into lot rent
• Any outstanding IRS or state tax liens — these attach to assets and must be cleared at closing

Asset Purchase vs. Entity Purchase: The Tax Difference

Frequently Asked Questions

What is purchase price allocation when buying a mobile home park?

Purchase price allocation is the process of dividing the total acquisition price across different asset classes — land, land improvements, personal property, structures — in a way that is agreed upon by buyer and seller and reported on Form 8594. How the price is allocated determines the depreciation deductions available to the buyer in the years following acquisition.

Should I set up an LLC before closing on a mobile home park?

Yes. The acquisition entity should be formed and funded before the purchase agreement is signed, and certainly before closing. Transferring a park into a new entity after closing can trigger transfer taxes, lender consent requirements, and potential tax recognition events that could have been avoided entirely with pre-closing entity planning.

How much of a mobile home park purchase price qualifies for bonus depreciation?

It depends on the specific park and requires a cost segregation study to quantify accurately. Qualifying assets typically include land improvements (roads, utilities, fencing — 15-year MACRS), personal property including park-owned homes (5-year MACRS), and certain equipment. Land itself does not depreciate. The percentage of total purchase price attributable to qualifying assets varies by park composition.

What is the difference between an asset purchase and an entity purchase for a mobile home park?

In an asset purchase, the buyer acquires individual assets and gets a fresh, stepped-up tax basis equal to the purchase price — maximizing depreciation deductions. In an entity purchase, the buyer acquires the selling entity and inherits its existing tax attributes. Most MHP buyers prefer asset purchases; sellers often prefer entity sales to minimize their recapture exposure.

Do I need a cost segregation study when buying a mobile home park?

For any park acquisition of meaningful size, a cost segregation study is almost always worth commissioning. The study identifies which portions of the purchase price should be allocated to short-life asset classes, directly increasing your depreciation deductions in the early years of ownership. The study is most valuable when ordered at or before closing. See the IRS Cost Segregation guidance for the foundational methodology.

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.