Bonus Depreciation for Mobile Home Park Owners: How to Use It in 2024 and 2025

Bonus depreciation is one of the most powerful tax tools available to mobile home park owners — and one of the most time-sensitive. The rates are phasing down under current law. The window to capture significant first-year deductions on qualifying MHP assets is narrowing, and the decisions that determine whether you capture those deductions or miss them must be made before the return is filed for the year the assets were placed in service.

This post covers the TCJA bonus depreciation framework, the current phase-down schedule, which MHP assets qualify and which do not, how cost segregation enables bonus on assets that would otherwise be ineligible, the election mechanics, and when electing out of bonus depreciation might actually be the right call.

What Bonus Depreciation Is and Where It Comes From

Bonus depreciation — technically called the “additional first-year depreciation deduction” under Section 168(k) of the Internal Revenue Code — allows taxpayers to deduct a specified percentage of the cost of qualifying property in the year it is placed in service, rather than spreading the cost recovery over the full MACRS recovery period.

Bonus depreciation has existed in various forms for years, but the Tax Cuts and Jobs Act of 2017 dramatically expanded it: it raised the bonus rate to 100%, extended eligibility to used property (not just new property), and significantly broadened the asset classes that qualify. The 100% rate applied to assets placed in service after September 27, 2017 and before January 1, 2023. Since 2023, the rate has been phasing down under the schedule established in the TCJA.

For MHP owners, the TCJA expansion meant that the park-owned homes and land improvements acquired with a new park — or bought individually — could potentially be deducted in full in the acquisition year, dramatically compressing the depreciation timeline and creating large first-year deductions. As the phase-down progresses, the benefit decreases — but remains significant and worth optimizing.

The TCJA Phase-Down Schedule

Under the TCJA framework, the bonus depreciation rate for qualifying property phases down as follows:

These rates reflect current law. Congress has previously extended or modified bonus depreciation, and the 2027 sunset date may not be the final word. Stay current with your MHP CPA on any legislative changes that affect bonus depreciation for assets placed in service in your tax year.

Which MHP Assets Qualify for Bonus Depreciation

The eligibility rule is simple: qualifying property under Section 168(k) must have a MACRS recovery period of 20 years or less. This means:

5-year property (personal-property-titled POHs): Qualify. The 5-year MACRS class is well within the 20-year threshold. Park-owned homes that retain their personal property title and are used in the MHP business are eligible for bonus depreciation in the year placed in service.

15-year property (land improvements — roads, utility lines, fencing, paving, drainage): Qualify. The 15-year MACRS class also falls within the eligibility threshold. Land improvements identified through a cost segregation study are eligible for bonus depreciation, which is one of the primary reasons cost segregation creates such significant value for MHP owners.

27.5-year residential real property: Does not qualify. Residential real property has a recovery period that exceeds the 20-year threshold. Permanently affixed structures depreciating over 27.5 years are not eligible for bonus depreciation.

39-year commercial real property: Does not qualify. Same reason — the 39-year recovery period exceeds the 20-year threshold.

Land: Not applicable — land is not depreciable at all.

This eligibility structure is why the allocation of purchase price among asset classes — driven by a cost segregation study — is so important. Every dollar you correctly move from the 27.5-year building basis into the 5-year or 15-year classes is a dollar that becomes bonus-eligible. The study creates the eligibility; the election captures it.

How Cost Segregation Enables Bonus on Otherwise Ineligible Assets

Without a cost segregation study, most of the value in an MHP acquisition sits in the 27.5-year building basis. Roads, utility lines, fencing, and storm drainage — all of which belong in the 15-year land improvement class — end up in the building or even the land basis simply because no one separated them out. These misclassified assets receive no bonus depreciation, even though they would qualify if correctly identified.

A cost segregation study separates these assets from the building basis and assigns them to the 15-year class. Once correctly classified as 15-year land improvements, they become eligible for bonus depreciation. The study moves the assets into eligibility; the bonus election then accelerates the deduction into the year of acquisition.

The combined effect — cost segregation identifying 15-year assets plus bonus depreciation accelerating them — can produce first-year deductions on land improvements that would otherwise have been spread across 16 tax years. For a park with significant infrastructure value, this combination is one of the most powerful tax strategies available at acquisition. See our detailed walkthrough in the post on cost segregation for mobile home parks.

The Bonus Depreciation Election Mechanism

Bonus depreciation is the default for qualifying property — it applies automatically unless you affirmatively elect out. This is important: if you do nothing, bonus depreciation is taken. If you do not want bonus depreciation for a given property class in a given year, you must elect out on your tax return.

The election out is made at the property class level, not at the individual asset level. You can elect out of bonus depreciation for all 5-year property placed in service in the current year, or for all 15-year property, but you cannot selectively take bonus on some individual homes and not others within the same class in the same year.

This class-level election constraint has planning implications. If you place multiple POHs in service during a tax year, you either take bonus on all of them or elect out for all of them. You cannot cherry-pick. If some of those homes have different economic characteristics that make bonus favorable for some and not others, the constraint means you must think about the aggregate effect across the class, not the individual asset effect.

When Electing OUT of Bonus Depreciation Makes Sense

Bonus depreciation is almost always beneficial — taking a dollar of deduction today is better than taking it in a future year. But there are specific situations where electing out of bonus is the right planning decision:

Low taxable income year. If your taxable income in the acquisition year is already low — below your normal bracket or generating a net operating loss — the immediate benefit of bonus depreciation is limited. The deductions in future years under the regular MACRS schedule may be more valuable if you expect to be in a higher bracket in those years.

Passive activity loss limitations. MHP rental income is generally passive. If the bonus depreciation deduction creates a passive loss that exceeds your passive income from other sources, the excess loss is suspended as a carryforward — not deducted immediately. In that case, the timing benefit of bonus depreciation may be illusory because you cannot use the loss in the current year anyway. A carryforward of regular MACRS deductions may have the same eventual effect with less complexity.

State tax impact. Some states do not conform to the federal bonus depreciation rules. If your state does not allow bonus depreciation, taking federal bonus creates a state income addition — you may need to add back the federal bonus to calculate state taxable income. In high-tax states, this can create a situation where the federal benefit is partially offset by a higher state tax bill. Your MHP CPA should model the state impact of bonus elections in every state where you have taxable income.

Tax basis management for future exit. Taking all available bonus depreciation today means lower adjusted basis in the affected assets. Lower basis means higher gain at sale. If you are planning a near-term exit, the recapture consequences of aggressive bonus depreciation taken today may outweigh the current-year benefit. Installment sale structures and 1031 exchanges can manage recapture exposure, but only if they are planned in advance.

Modeling these trade-offs is exactly the kind of analysis that belongs in a strategic planning engagement, not a compliance-only relationship. See our overview of strategic tax planning for MHP owners for more on how these decisions fit into a multi-year planning framework.

How to Model the Bonus Depreciation Decision

The decision to take or elect out of bonus depreciation should be modeled explicitly rather than assumed. The model should include: the total cost basis of qualifying assets placed in service in the current year, the applicable bonus percentage for the tax year, the current-year taxable income before the bonus election, the passive income and loss picture, the state conformity status and any required addback, and the projected future income trajectory.

With those inputs, your CPA can calculate the effective tax savings from taking bonus today versus deferring to regular MACRS, the passive loss carryforward amount if applicable, and the long-term recapture exposure difference. The model should cover at least three to five years to capture the time-value-of-money benefit correctly.

This modeling is not complicated for an MHP-specialized CPA. It is a standard part of the acquisition tax planning engagement. For more on how the depreciation foundation for this analysis gets built, see our guide to mobile home depreciation for park owners and our explanation of MHP depreciation rates.

Frequently Asked Questions

For the official IRS guidance on the additional first-year depreciation deduction, see IRS guidance on depreciation and amortization including bonus depreciation.

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.