The MHP Accountant

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POH/TOH Classification

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Proper classification of park-owned homes (POH) and tenant-owned homes (TOH) is one of the most critical—and most misunderstood—aspects of mobile home park accounting.

Misclassifying your homes can cost you tens of thousands in lost depreciation deductions, create IRS audit exposure, and produce inaccurate financial statements that hurt your ability to secure financing or sell your park at maximum value.

At The MHP Accountant®, we specialize in helping mobile home park operators properly classify, account for, and depreciate both park-owned and tenant-owned homes. Whether you’re acquiring a new park, cleaning up accounting errors, or preparing for a sale or refinance, our expertise ensures your books accurately reflect reality and maximize your tax benefits.

What Are POH and TOH?

Tenant-Owned Homes (TOH)

A tenant-owned home is owned by the resident while the park provides the land, utilities, and infrastructure. The resident owns the unit; the park rents the lot beneath it.

Key characteristics:

  • Resident maintains the home
  • Park maintains only infrastructure
  • Revenue is lot rent only
  • Lower maintenance costs
  • Lower CapEx obligations

Park-Owned Homes (POH)

Park-owned homes are owned by the community and rented to residents like standard rental housing.

Key characteristics:

  • Park handles all maintenance and repairs
  • Higher CapEx and repair costs
  • Revenue includes both home rent and lot rent
  • More frequent turnover
  • Significantly higher depreciation opportunities

Why Proper POH/TOH Classification Matters

1. Depreciation Impact

TOH parks:

  • Cannot depreciate homes (you don’t own them)
  • Depreciate only infrastructure improvements

POH parks:

  • Depreciate homes over 27.5 years (or 15 years as personal property)
  • Appliances may qualify for 5-year depreciation
  • Strong cost segregation opportunities

Misclassification = leaving hundreds of thousands in deductions on the table.

2. Rent Roll Accuracy

Lenders and buyers scrutinize rent rolls carefully.

TOH rent rolls must include:

  • Lot rent only
  • Utilities clearly separated
  • No home rent component

POH rent rolls must include:

  • Home rent and lot rent separated
  • Repairs tracked per home
  • RTO contracts separately identified

Clean, accurate rent rolls are essential for financing and sales.

3. IRS Compliance

Common errors the IRS watches for:

  • Depreciating homes you don’t own
  • Treating rent-to-own homes as rental property
  • Not separating home rent from lot rent
  • Inconsistent capitalization policies

These trigger audits and result in penalties and disallowed deductions.

4. Lender Requirements

Lenders need clean financials with:

  • Clear POH/TOH separation
  • Accurate expense allocation
  • Proper depreciation schedules

Mixed or inaccurate books hurt your financing terms and business valuation.

How POH and TOH Are Taxed Differently

Tenant-Owned Homes (TOH)

Revenue: Lot rent, utility charges, fees

Depreciation: Infrastructure only (15-year property), no depreciation on homes

Expenses: Infrastructure maintenance, property taxes, insurance

Park-Owned Homes (POH)

POH classification depends on structure:

1. POH as Rental Property (Most Common)

Depreciation:

  • Homes depreciate over 27.5 years
  • Components may qualify for 5-year depreciation
  • Cost segregation accelerates deductions

Revenue: Home rent + lot rent (tracked separately)

Expenses: Repairs (deductible), improvements (capitalized)

2. POH as Personal Property (State-Dependent)

Some states classify manufactured homes as personal property:

  • 15-year depreciation (faster than 27.5)
  • Enhanced cost segregation benefits
  • Depends on state law and title status

3. POH as Inventory (Rent-to-Own)

Homes sold via rent-to-own, lease-option, or installment sale:

  • No depreciation allowed (inventory, not rental property)
  • Income split between principal and interest
  • Expenses capitalized into cost of goods sold

This is one of the most commonly misclassified scenarios. Treating RTO homes as depreciable rental property is a major IRS red flag.

Common POH/TOH Classification Errors We Fix

Error #1: Depreciating Tenant-Owned Homes
Claiming depreciation on homes you don’t own. High IRS risk.

Error #2: Mixed Rent Rolls
Not separating home rent from lot rent. Hurts financing.

Error #3: RTO Homes Treated as Rental Property
Depreciating inventory. Very high IRS risk.

Error #4: Inconsistent Tracking
Some homes correctly classified, others not. Creates audit exposure.

Error #5: No Documentation
Unclear records of ownership. Can’t defend in audit or due diligence.

Our POH/TOH Classification Process

Step 1: Property Assessment

Review purchase documents, title status, rent rolls, depreciation schedules, and state regulations.

Step 2: Home-by-Home Classification

Create detailed register with ownership status, title classification, and depreciation method for each home.

Step 3: Rent Roll Restructuring

Rebuild rent roll with proper separation of lot rent, home rent, utilities, and RTO contracts.

Step 4: Depreciation Schedule Correction

Update schedules with accurate recovery periods, cost segregation opportunities, and catch-up adjustments.

Step 5: Financial Statement Cleanup

Ensure balance sheet, income statement, and expense allocation accurately reflect POH vs TOH operations.

Step 6: Ongoing Support

Annual updates, RTO tracking, new acquisition integration, lender reporting, and audit defense.

Who Needs POH/TOH Classification Services?

You need our help if:

✓ You just purchased a park and need proper setup
✓ You’re unsure if your books are correct
✓ You’re preparing to sell or refinance
✓ You offer rent-to-own contracts
✓ Your lender is questioning your financials
✓ You inherited messy books
✓ You own parks in multiple states
✓ You’re converting TOH to POH (or vice versa)
✓ You want to maximize depreciation legally
✓ You’re facing an IRS audit

Real-World Example

100-space park: 60 TOH, 40 POH

Before:

  • All homes incorrectly classified as POH
  • Depreciation claimed on 60 homes the park doesn’t own
  • Mixed rent roll
  • Lender questioning accuracy

After:

  • 60 homes reclassified as TOH (no depreciation)
  • 40 POH correctly depreciated with cost segregation
  • Rent roll restructured
  • $120K in legitimate POH depreciation captured
  • $85K in improper TOH depreciation removed
  • Lender approved refinance with better terms

Why Choose The MHP Accountant® for POH/TOH Classification?

MHP-Specific Expertise
We work exclusively with mobile home park owners and understand infrastructure depreciation, state property law, lender expectations, and RTO accounting.

Defensible Documentation
Asset registers, title documentation, depreciation workpapers, and IRS-compliant records for audit protection.

Lender-Ready Financials
Clean rent rolls, proper allocation, and professional statements that lenders trust.

Proactive Tax Planning
We identify cost segregation opportunities, maximize depreciation, and coordinate with exit planning.

Ongoing Support
We update records as your portfolio evolves and handle lender questions and audits.

Frequently Asked Questions

Can I depreciate improvements to a tenant-owned home?
No. Improvements to TOH are typically captured by the tenant or classified as infrastructure improvements.

What if I’m buying a park with mixed POH and TOH?
We help allocate purchase price correctly, set up separate schedules, and identify cost segregation opportunities.

How do I handle rent-to-own homes?
RTO homes are inventory, not rental property. No depreciation allowed. Income is split between principal and interest.

What if my previous accountant classified everything wrong?
We can fix it through accounting method changes (Form 3115), amended returns, or prospective correction.

Can I convert TOH to POH (or vice versa)?
Yes, but must be done correctly with proper tax treatment when homes are bought or sold.

Ready to Get Your POH/TOH Classification Right?

Proper classification is foundational to accurate accounting, maximum tax savings, and lender-ready financials.

Don’t leave money on the table or risk IRS penalties due to misclassification.

Contact The MHP Accountant® today to schedule a free consultation and discover how proper POH/TOH accounting can save you tens of thousands in taxes.

Schedule Your Free Consultation

Call: 1-844-PARKTAX (844-727-5829)
Email: info@themhpaccountant.com
Schedule: Contact The MHP Accountant®

 

Disclaimer

This content is for educational and informational purposes only and does not constitute tax, legal, or financial advice. Tax laws and regulations are complex and subject to change. Always consult with a qualified tax professional or CPA regarding your specific situation before implementing any tax strategy. The MHP Accountant® does not guarantee specific outcomes or tax savings.