I am looking to purchase a 54 unit MHP with 26 park owned homes, the property has sidewalks, paved roads and parking spaces is it worthwhile for me to look at a cost segregation study? Any idea what the cost and benefit is? The seller is wanting $400,000 for the land and $387,500 for the improvements. Thanks in advance!
@Charlie Loomis a few things to note:
If the seller breaks down the land from improvements in the PSA, you will only have the $387,500 to be depreciated, since land doesn't depreciate. If you do not breakdown the land allocation in the PSA you can use county assessor, an appraisal, or sales comps of nearby land, to come up with the real land value. Hopefully less than 51%, so you can depreciate more.
Of that $387,500, with a proper cost seg study you will likely be able to accelerate 50-80% of the depreciation to faster categories. Land improvements, like the sidewalks, paved roads and parking spaces you mentioned, among other things like landscaping, signage, as well as the concrete pads under each home. The Mobile homes themselves will either be treated as 27.5 year depreciation or 5-year 'personal property' if the homes still have the wheels and axels on.
As far as the cost and benefit, most firms will give you an upfront quote (but self promotion is not permitted here 😉)
One cannot answer whether or not this strategy is worthwhile for you, since we don't know your tax situation, and how much income the park is producing, or if you can use that depreciation to offset other income. Best to speak with your CPA after getting an estimate from a cost seg firm.
Thanks for the input checking out the wheels and axles now
@Charlie Loomis . You got some great advice from @Yonah Weiss above, but I think he is being modest. There is a very high chance that a cost segregation study will be profitable here. When using debt, we often see the year-one bonus depreciation eclipse the equity invested. Meaning that an investor can invest (say) $300,000 in this deal and get a year-one paper loss (from bonus depreciation) of more than $300k on an MHP. We have seen this over and over. Please note that the new Administration could take away the bonus depreciation provisions from the 2017 tax law sooner than 2024+, so don't invest for this reason only. Good luck!
Just to jump in here, it's definitely worth getting an evaluation from a reputable firm experienced with cost segregations. As Yonah mentioned, most will give you a free analysis. Similar to life, things are always changing in the tax landscape. So, if you decide to pursue a cost seg study, I recommend finding a firm that provides a Perpetual Cost Segregation Study with annual, evergreen reviews to find expenses from dispositions, additions, favorable changes in tax laws while also using the changes to drive lower insurance and property tax premiums.