I'm close to getting my first MHP under contract and am trying to understand whether my project will have some of the tax advantages that park owners enjoy due to the 15 yr depreciation schedule on certain infrastructure assets.
Here's the issue; I'm buying the park for the current assessed land tax value and because it's a TOH only park with no buildings, the tax assessment doesn't reflect any land improvements (that would otherwise provide a starting point for determining a reasonable allocation between what's depreciable and what isn't (ie., the land). Obviously there is great inherent value in the infrastructure (paved roads, upgraded septic systems, water/sewer lines, etc.) so how is a reasonable depreciable basis calculated from the outset?
If my purchase price is the same as the assessed land value, will I have any depreciable basis going into the project in the eyes of the IRS? I understand that future capital improvements would be depreciable but if none of the value of the existing infrastructure can be applied towards the basis, it obviously reduces my after-tax returns.
If the answer to question above is no, can I effectively create a defensible basis by getting a cost segregation done that breaks out the true value of the infrastructure or, would the appraisal suffice since the appraiser would presumably provide a breakout of the infrastructure value?
For the purpose of the questions, if the purchase price of the park is $1M and current assessed land value is $1M (despite the fact we know many assessments are artificially high the for tax gains of the municipality and do not reflect the true market value), I guess I'm essentially asking if / how I create a case to lower the value of the land and apportion the balance to "infrastructure", and thus gain a depreciable basis from day one (or am I dreaming)?
I definitely think there is a case to be made ... when we bought ours we used recent local comps for the land value and then broke out as much of "everything else" as we could ... roads, mailboxes, fences, light posts, there is a storage shed on site ... each type of "improvement" will have a different depreciable life, but it should get the weighted average down which will help ... there is a good podcast episode on this topic done by @jeffersonlilly early on ... you should look that up and check it out ... good luck
yes, cost segregation should do what you need
@Joe Hamner The assessed land value does NOT mean that you will have no depreciable basis and everything will be assigned to land (not depreciable).
Getting a cost segregation study done will break out the 15 year depreciable assets (landscaping, pavement, fencing, site lighting, etc.) from the 27.5-year infrastructure assets (septic, water, propane, electrical, etc.). This will be your basis. Guesstimating that could get you into trouble.
You will probably still need to assign a high value to land, but with Bonus depreciation, you could potentially get all of the 15-year assets depreciated in the first year.
@Yonah Weiss and @James Davis - thank you. Sounds like the cost segregation approach is the way to go.
@Patrick McKenna - thanks for the tip on the JL podcast; I'll definitely check that out.