Voorhees, NJ · Member since 2017 · 2 posts · 0 votes
I would greatly appreciate if someone could let me know the correct # of MACRS depreciation years that a manufactured home not anchored to land (e.g. sitting on leased land). Specific links or references to IRS publications would be ideal. Thanks in advance!
Depends how you use it. If it's rental property it's 27.5 years. If it's commercial property it's 39 years. If it's your home it's non-depreciable. An accountant would probably be able to help you with applying this properly. Since the manufactured home is already separate from the land you're able to skip a step and the purchase price of the home (not including the land lease) is your depreciable cost basis. So you simply divide the purchase price (plus any improvements, based on when they were placed in service) by 27.5 and you get the annual depreciation. This is 3.636% of the depreciable cost basis. You need to adjust the first and last year based on when the property was placed in service: if you placed it in service in October you'd have 3 months worth of depreciation for the year, and the last year would be adjusted up from 6 months to 15 months, 12 months the 28th year and 3 months in the 29th year.
If you want to read the Tax Code have fun it's thousands of pages. Depreciation is discussed in IRS Publication 946 (How to Depreciate Property), IRS Publication 527 (Residential Rental Property) and IRS Publication 544 (Sales and Other Dispositions of Assets - covers depreciation recapture). There's also the tangible property regulations and dozens of revenue procedures and private letter rulings addressing depreciation.
If you really want to break it down there are assets in a manufactured home that qualify for accelerated depreciation as tangible personal property, but going through the trouble of identifying such assets at this level generally doesn't make financial sense.
Depends how you use it. If it's rental property it's 27.5 years. If it's commercial property it's 39 years. If it's your home it's non-depreciable. An accountant would probably be able to help you with applying this properly. Since the manufactured home is already separate from the land you're able to skip a step and the purchase price of the home (not including the land lease) is your depreciable cost basis. So you simply divide the purchase price (plus any improvements, based on when they were placed in service) by 27.5 and you get the annual depreciation. This is 3.636% of the depreciable cost basis. You need to adjust the first and last year based on when the property was placed in service: if you placed it in service in October you'd have 3 months worth of depreciation for the year, and the last year would be adjusted up from 6 months to 15 months, 12 months the 28th year and 3 months in the 29th year.
If you want to read the Tax Code have fun it's thousands of pages. Depreciation is discussed in IRS Publication 946 (How to Depreciate Property), IRS Publication 527 (Residential Rental Property) and IRS Publication 544 (Sales and Other Dispositions of Assets - covers depreciation recapture). There's also the tangible property regulations and dozens of revenue procedures and private letter rulings addressing depreciation.
If you really want to break it down there are assets in a manufactured home that qualify for accelerated depreciation as tangible personal property, but going through the trouble of identifying such assets at this level generally doesn't make financial sense.
Wow, thanks Paul! This is quite helpful. I was told by a colleague that manufactured homes are considered "chattel" (e.g. like an automobile) and as such have a depreciation schedule like personal property, e.g. 5, 7, 10 yrs, so I am surprised to hear your comments that it is longer than that. Keep in mind they are sitting on leased land, so they are not considered real estate from a traditional standpoint. Josh
It's not that it's traditional real estate, it is residential rental property. Page 9 of Publication 527 specifically includes mobile homes in "any real property that is a rental building or structure (including mobile homes)" So your colleague is incorrect; the manufactured home is residential real property, not tangible personal property (chattel). However there is some tangible personal property in the mobile home (e.g. the carpet, window treatments, etc.) that does qualify for 5 year depreciation. The problem is knowing what's what so most just lump it all together under 27.5 year to "be safe" and not overstate your deductions since that opens you up to fines and penalties. The IRS usually doesn't care if you understate your deductions. Here's the problem: the carpet is considered 5 year tangible personal property, but the tile is considered attached to the floor and therefore a building component so it's 27.5 year residential real property. If you put wallpaper on the walls that is considered 5 year property because you can remove it easily and not damage the wall. If you paint that wall the paint is considered attached to the wall and therefore a building component and 27.5 year property. This goes on for every single thing in the building, depending on what it is and how it's used it may qualify for accelerated depreciation and it may not. The rules continue to get more complex, like I said the Tax Code is thousands of pages, it's updated constantly, doesn't always make sense and useful information is buried in pages and pages of stuff that doesn't apply to 99% of taxpayers.
MACRS(Modified Accelerated Cost Recovery System) must be used with all residential rental property, commercial property and leasehold improvements. The easy way to do this is lump it all together as residential real property and depreciate over 27.5 years. The hard way is to separate out the costs of the structural components from the tangible personal property and depreciate accordingly with structural components over 27.5 years and tangible personal property over 5 years (rare exception some 7 year property) and being a mobile home there would be no land improvements which would be 15 year property.
If you own an entire mobile home park it would make sense to go through the trouble of properly depreciating with cost segregation, but if you're just looking at one mobile home the costs of going through all that outweigh the tax benefits of doing so.
Thanks @Carrie Cavins! Just trying to help out! Depreciation is my specialty so I like to explain stuff on here since working through posts like this makes it easier for me to explain it to clients with similar situations. Depreciation is often overlooked and misunderstood so I like spreading some knowledge on it.