Cost Segregation Explained for Mobile Home and RV Park owners in 2 minutes. These are great assets for cash flow and the depreciation these parks generates is second only to C-stores and tunnel car washes. It’s not uncommon to see 50-90% of the property get reclassified so it can be accelerated.
What does this mean? Let’s say you purchased an RV Park for $2.5MM and the land is worth $500,000. That leaves you with a cost of $2MM which as it sits is 27.5 year property. But what if you could reclassify 75% of it by doing cost segregation? That’s $1.5MM in property that has been reclassified as either 5 or 15 year property. In 2023 you can take 80% bonus depreciation. So the owner could get a depreciation expense of $1.2MM in year one of owning the property. If he/she took straightline 27.5 year deprecation without cost segregation, the depreciation expense would be a maximum of about $72,000 that first year depending upon when they put it into service.
Remember that cost segregation is based upon cost and not appraised value. If you have a property that you paid $200,000 for 20 years ago and now it’s worth $1.5MM, a study isn’t going to help you much unless you’ve done a ton of improvements along the way. What we are seeing is a number of these parks are either being developed or they are trading hands. Once that happens, the new owners should definitely look at doing cost segregation.
I work all over the U.S. in all 50 states and get calls from all over the place to help with cost segregation not only on these assets but all types of commercial property. I’d be happy to talk with you at no charge and if you’d like our team to run the numbers for you, just let me know. Connect with me on LinkedIn or Twitter.