Mobile Home Park Investing: Bonus Depreciation & Cost Segregation Studies

The mobile home park asset class has quickly become a hotspot for investors looking for potentially significant returns. As this sector typically experiences robust growth, savvy tax planning strategies like Cost Segregation studies and leveraging Bonus Depreciation regulations have become essential tools for possibly enhancing investment profitability and tax efficiency.

Mobile Home Park Investing: Depreciation & Cost Segregation

Understanding Cost Segregation

Generally, cost segregation is a tax-saving strategy that accelerates depreciation deductions, reducing tax liabilities and boosting cash flow for investors. This IRS-sanctioned approach involves a meticulous property analysis to reclassify certain assets for faster depreciation over 5, 7, or 15 years instead of the standard 27.5 or 39 years.

The Power of Bonus Depreciation

Bonus Depreciation serves as an immediate tax relief for businesses, allowing a large portion of the purchase price of qualifying assets to be deducted in the year of service. This provision aims to reduce taxable income significantly by allowing for the immediate deduction of the total cost of eligible assets. 

Combining Strategies for Maximum Benefit

When Bonus Depreciation is paired with a Cost Segregation Study, the tax benefits are usually magnified. Assets identified for shorter depreciation schedules qualify for bonus depreciation, typically allowing investors to deduct the entire cost in the first year of service. This approach often  reduces taxable income and enhances cash flow, providing more resources for reinvestment or debt reduction.

At Keel Team Mobile Home Park Investments, we usually invest using a combination of different methods with our mobile home park investments, typically involving the Buying, Renovating, Holding Long-Term, and Refinancing our assets with Agency Debt (Fannie Mae/Freddie Mac). We only ever sell our properties if we lose trust in the market or if we are presented with a Godfather offer, as the famous investor Sam Zell would say. Check out our eBook on the “Top 20 Things I’ve Learned from Investing in Mobile Home Parks” by Andrew Keel for more potentially valuable insights!

Mobile Home Park Investing: Depreciation & Cost Segregation

Mobile Home Park Investing: Real-World Impact

Consider a mobile home park purchased for $1 million, with 60% of its value ($600,000) depreciable. Traditionally, this amount would be depreciated over 27.5 years. However, a Cost Segregation Study can reallocate 30% ($180,000) of the depreciable basis to assets with shorter lifespans, eligible for immediate 100% bonus depreciation. This strategy can significantly lower tax liabilities in the acquisition year, potentially increasing available cash for further investments.

Legislative Developments and Their Implications

Recent legislative proposals aim to reinstate 100% bonus depreciation for the 2023 and 2024 tax years, potentially increasing the attractiveness of mobile home park investments. This change could allow for even greater immediate deductions, further reducing tax obligations and enhancing investor liquidity.

Navigating Tax Filings with Pending Legislation

With potential legislative changes on the horizon, mobile home park investors face decisions regarding their tax filings. The prudent approach involves filing taxes based on current regulations while preparing to amend returns if the proposed legislation passes, ensuring the maximum possible depreciation benefits are possibly realized.

Conclusion: A Window of Opportunity

The strategic use of Cost Segregation Studies and Bonus Depreciation typically offers a potent combination for mobile home park investors to potentially minimize taxes and maximize returns. With the landscape of tax legislation likely shifting to further favor investors, now is an opportune time to reassess tax strategies and consult with tax professionals to leverage these advantages fully. Happy investing!

At Keel Team Mobile Home Park Investments, we’re dedicated to enhancing communities while potentially maximizing investor returns. Our focus is on improving residents’ lives while delivering strong profits to our partners. Get in touch using the contact details below to learn more about our investment approach and strategy.

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The information provided is for informational purposes only and should not be considered investment advice, nor a guarantee of any kind. There are no guarantees of profitability, and all investment decisions should be made based on individual research and consultation with registered financial and legal professionals. We are not registered financial or legal professionals and do not provide personalized investment recommendations.

Tristan manages Investor Relations at Keel Team Real Estate Investment. Keel Team actively syndicates mobile home park investments, with a focus on buying value add, mom & pop owned trailer parks and making them shine again. Tristan is passionate about the mobile home park asset class; with a focus on affordable housing and sustainability.