RV Parks & Mobile Home Parks: Cost Segregation & Bonus Depreciation

An investor buys an RV park for $2.5M. He assumes his CPA will depreciate the whole thing over 27.5 years, like an apartment complex.

What he doesn’t know yet, which is surprising in a world this saturated with tax content, is that the acquisition he just closed is going to drive a much larger first-year deduction than he expects.

The Classification Question That Controls Everything

Before you depreciate a single dollar, you have to answer one question: what did you actually buy?

An RV park is not a building. It’s a collection of assets, and each one has its own recovery period, its own recapture rules, and its own §1031 eligibility.

• Land. Not depreciable. But the allocation to land directly reduces your depreciable basis, same as any real estate deal.
• Site infrastructure. Roads, pads, utility hookups, sewer systems, electrical distribution. These are land improvements: 15-year MACRS, bonus eligible. This is where a cost segregation study pays for itself 10x over.
• Park-owned homes and units. Personal property, 5 or 7-year MACRS depending on classification. Post-TCJA, this is NOT real property for §1031.
• Common-area buildings. Clubhouse, laundry, office, pool house. 27.5 or 39-year, depending on whether the use is residential or commercial.
• Goodwill and going concern. If you’re buying an operating park, and you almost always are, there’s intangible value. That’s a §197 intangible, amortizable over 15 years.

The mistake: treating the entire purchase price as a single building and depreciating it over 27.5 years. A cost seg on an RV park typically reclassifies 40-60% of the purchase price into shorter-lived assets. On a $2.5M acquisition, that can mean $1M+ of bonus depreciation in year one.

Rental Activity vs. Trade or Business: The §469 Fork

This is where RV parks and mobile home parks split. They look almost the same on the surface. The deeper you dig, the more the differences matter.

RV parks (transient use):

• Average customer use is almost always 7 days or less, which makes it a non-rental activity under Reg. §1.469-1T(e)(3)(ii)(A).
• It’s treated as a trade or business for §469 purposes, the same treatment as a short-term rental.
• Material participation matters. If you (or your spouse) materially participate, the losses are nonpassive.
• If you don’t materially participate, the losses are passive, but they are NOT rental passive. They can offset other nonpassive income if you group the activities properly (see the grouping post).

Mobile home parks (long-term tenants):

• Average customer use is well over 7 days. Leases are typically month-to-month or annual.
• This is a rental activity under §469.
• Losses are passive unless you qualify as a real estate professional under §469(c)(7).
• There’s no material participation shortcut here. You need REPS or the $25K active participation allowance.

The hybrid problem

Many parks have both RV sites (transient) and long-term manufactured home sites. Depending on the facts, you may need to bifurcate the activity or treat it as a single one. How you classify this drives your entire passive activity position.

Vacation-destination parks (beach, mountain, the getaway markets) don’t always fit the transient mold either. You’ll have guests staying longer than 7 days, so you have to track average use, as noted above. But by tracking it, you’ve put yourself in a stronger position.

The real question becomes: are you managing this, or do you have a team managing it?

Running an RV park, especially a larger one, takes time and continuous effort. These are not a one-man show. They usually require multiple managers.

Operators in the RV park space generally clear the 500-hour test under Treas. Reg. §1.469-5T(a)(1) because, most of the time, this is a full-time business with a lot of active management.

Form 8594: The Allocation Document Most RE Investors Have Never Seen

When you buy a standard rental property, you don’t file Form 8594. There’s no goodwill. No going-concern value.

You’ll see plenty of RV park and MHP deals treated the same way. It’s still real estate, and that assumption is common.

But an RV park can be different. You’re often buying an operating business: brand recognition, customer lists, online reviews, booking history, an occupancy track record. That’s goodwill under §197.

Here’s the trap for the unwary. If you’re acquiring the whole business operation, you need a §1060 allocation. Form 8594 (Asset Acquisition Statement) is required under §1060 when you acquire a trade or business. Both buyer and seller file it, and the allocation has to be consistent between them.

The §1060 classes that matter:

• Class V: all tangible personal property and land improvements. This is where your cost seg components land.
• Class VI: §197 intangibles other than goodwill (non-compete agreements, customer lists if separately identifiable).
• Class VII: goodwill and going-concern value (the residual).

Buyer’s incentive: push more into Class V (shorter depreciation, bonus eligible) and less into Class VII (15-year amortization, no bonus). As the purchaser, this is where you want as much basis as possible. The settlement statement will outline some of it. Where it doesn’t, the cost segregation study finishes the allocation.

Seller’s incentive: push more into goodwill (capital gain) and less into personal property (§1245 ordinary recapture). The seller also wants more value on the land, because that’s §1231 property, which again reduces the tax they owe.

It’s a push and pull. More often than not, the deal has to carry some land value, and no matter how the cost seg comes out, you’ll have some 39-year property in the mix.

The Land-Lease Model and Why It Changes the Depreciation Math

In a land-lease MHP, the model most operators prefer, the park owns the land and the infrastructure but NOT the homes. Tenants own their manufactured homes and pay lot rent.

The tax implications:

• Your depreciable basis is almost entirely infrastructure: roads, pads, utilities, common areas.
• No park-owned homes means no §1245 personal property recapture risk on exit.
• The land-to-improvement ratio matters more here than in any other real estate asset class.
• Cost seg is still worth running. The components you’re reclassifying are just different: utility systems, site work, paving.

Compare that to a park-owned home model:

• You own the homes, so you depreciate them over 5-7 years. That’s a large front-end deduction.
• But on sale, every dollar of that depreciation comes back as §1245 ordinary income recapture.
• And post-TCJA, the homes are personal property, so they are NOT eligible for a §1031 exchange.
• If you’re selling homes to tenants, watch the dealer classification. Regular sales of homes in the ordinary course of business are dealer income: no installment method under §453(b)(2)(A), no capital gains.

The Exit: Recapture and §1031 Considerations

This is where the front-end acceleration comes home to roost:

• §1245 components (personal property, park-owned homes, certain site improvements reclassified by cost seg): all depreciation recaptured at ordinary rates on sale.
• §1250 components (buildings): unrecaptured gain at 25%, the remainder at §1231 capital rates.
• §197 intangibles (goodwill): §1231 gain, no recapture. This is the cleanest exit dollar you have.
• Land: pure §1231 gain. No depreciation, no recapture.

On the §1031 exchange: you can defer the real property gain through a like-kind exchange. But post-TCJA, personal property is excluded from §1031. Those park-owned homes you accelerated depreciation on? That recapture is not deferrable through a 1031. You eat it on sale.

The land improvements and the pads the homes sit on are a different story. Those are eligible for deferral.

The planning move: if you’re acquiring with the intent to 1031 out eventually, model the cost seg with the exit in mind. The acceleration is worth it if the time value of the front-end deduction beats the recapture hit. But you have to actually run the numbers, not assume.

What to Do With This

If you’re looking at an RV park or MHP acquisition:

Have your CPA classify every asset category BEFORE closing, not after. The allocation in the PSA drives the 8594, the 8594 drives the depreciation, and the depreciation drives your entire tax position for the hold period and the exit.

Run a cost segregation study. On parks, the reclassification percentages are typically higher than standard multifamily, because so much of the value sits in site infrastructure rather than vertical construction.

The study is also your substantiation if the IRS ever looks at the allocation, so keep it in the file.

Model the §469 classification. Is this a rental or a trade or business? If it’s an RV park with transient use, you may not need REPS to use the losses. If it’s an MHP, you almost certainly do.

And if you’re buying park-owned homes, understand that every dollar of bonus depreciation you take on those homes creates a §1245 recapture liability that can’t be deferred through a 1031. That’s not a reason to skip it. It’s a reason to model the hold period and make sure the math works.

Schedule a consultation with Hall CPA to maximize the benefits of this asset class and avoid surprises down the road.