How do mobile home parks generate such large first-year deductions?
Because in the land-lease model almost everything you buy above the dirt is 15-year land improvements — pads, roads, utilities, fencing — and 15-year property is eligible for 100% bonus depreciation. A $10 million park with a 60/40 land-to-improvements split can produce a $4 million first-year deduction on $3 million of equity. The catch is that land itself is never depreciable.
Why this asset class is different
Buy an apartment building and most of your purchase price lands in the 27.5-year building shell, which gets no bonus depreciation. A cost segregation study pulls maybe 20% to 30% into shorter lives.
A land-lease mobile home park inverts that. You are not buying much building at all. You are buying land, and on that land: concrete pads, interior roads, water and sewer laterals, electrical pedestals, lighting, fencing, landscaping, signage, and a small office or laundry structure.
Nearly all of that is land improvements — 15-year MACRS property, and therefore bonus-eligible. The proportion of purchase price sitting in a bonus-eligible bucket is far higher than in almost any other real estate asset class.
RV parks, self-storage and marinas share the same characteristic for the same reason.
The numbers
Take a straightforward land-lease acquisition.
| Purchase price | $10,000,000 |
| Land (non-depreciable) — 60% | $6,000,000 |
| Land improvements, 15-year — 40% | $4,000,000 |
| Equity contributed | $3,000,000 |
| Loan | $7,000,000 |
| First-year bonus depreciation | $4,000,000 |
A $4 million deduction against $3 million of equity. At a 37% marginal rate that is roughly $1.5 million of tax value in year one, against $3 million invested.
The 60/40 split is deliberately conservative — the actual allocation comes from an appraisal and a cost segregation study, and parks in some markets carry a higher improvement ratio. Two things drive it: how much of the value is genuinely dirt versus infrastructure, and how well documented the allocation is.
Note what makes this work. Depreciation is computed on the full basis of the improvements, not on your equity. The $7 million loan is doing the heavy lifting — this is a leveraged deduction, and it is why real estate outperforms on an after-tax basis.
Who gets the deduction?
This is the part that gets fund managers' attention, and it is where the four gates matter.
Continue the example. The $4 million deduction has to be allocated among the partners, and every allocation must clear basis (§704(d)) and at-risk (§465) before anyone deducts anything.
The LPs contributed $3 million. That is their basis, and it is their at-risk amount. They can absorb $3 million of loss.
The GP contributed nothing. But suppose the GP signed the $7 million loan on a recourse basis. Under §752, recourse debt is allocated to the partner who bears the economic risk of loss — the GP. That creates basis. Under §465, personally liable debt is at-risk.
So the remaining $1 million of deduction can be allocated to the GP, who has no cash in the deal.
| Capital in | Debt allocated | Loss allocable | |
|---|---|---|---|
| LPs | $3,000,000 | — | $3,000,000 |
| GP | $0 | $7,000,000 recourse | $1,000,000 |
That is not a loophole. It is what §752 and §465 say when the economics are what they are: the GP is the person who loses if the loan goes bad, so the GP gets the basis. What it requires is that the loan actually be recourse to the GP, that the operating agreement allocate consistently with the economics, and that the §704(b) allocation have substantial economic effect.
Recourse debt on mobile home park acquisitions is common, which is why this pattern shows up in this asset class more than most.
Read more: What are the four gates every real estate tax loss must pass through?
Owning the homes as well
Some operators own the homes on the pads rather than only leasing the dirt.
You keep all the land improvement deductions, and you add depreciation on the homes themselves — residential rental property, 27.5-year life, no bonus. Plus appliances and furnishings inside them, which are 5- and 7-year property and are bonus-eligible.
The trade-off is not really a tax question. Owning homes means owning maintenance, turnover and collections on individual units. The land-lease model exists because it is the lower-friction business. Choose the operating model first; the tax treatment follows.
The goodwill allocation question
A wrinkle worth understanding, because it comes up in negotiations and it cuts both ways.
When a park is bought as a going concern with a name, a reputation and stabilized occupancy, part of the purchase price can be allocated to goodwill — an intangible amortized over 15 years under §197.
Some buyers push value toward goodwill deliberately, usually to reduce the real property assessment and therefore ongoing property taxes.
But understand the trade before you agree to it:
- §197 goodwill is amortized, not depreciated, and it is not bonus-eligible. You take it over 15 years, straight line. Moving $500,000 from land improvements to goodwill converts an immediate $500,000 deduction into roughly $33,000 a year.
- Buyer and seller have opposing interests in the allocation, and it is reported by both on Form 8594. Inconsistent reporting invites scrutiny.
- The allocation has to reflect economic reality. A park with no brand, no premium and no transferable business value does not have meaningful goodwill because the buyer would prefer the answer.
- Property tax savings can be worth more than the depreciation timing in a high-assessment jurisdiction. Model both. Do not let the allocation be decided by whoever drafts first.
Before you get excited about the deduction
Every caveat from the four gates applies, and this asset class produces deductions large enough that gate four binds routinely.
The §461(l) cap. A $4 million deduction does not eliminate a $4 million W-2. Net business losses can shelter only $512,000 of non-business income for joint filers in 2026 ($256,000 otherwise), per IRS Rev. Proc. 2025-32. The remainder carries forward as a net operating loss.
Passive activity. LPs with no material participation are passive. That deduction offsets passive income and nothing else unless they qualify as real estate professionals.
Recapture. Land improvements depreciated under an accelerated method can generate recapture on sale, and the deduction taken today reduces basis, increasing gain later. On a short hold the arithmetic can invert.
Basis limits. An LP allocated more loss than their capital account supports has a suspended loss, not a deduction.
The sponsor who tells prospective investors "you get a 100% deduction in year one" is describing the allocation, not the deduction. Whether any individual investor can use it depends entirely on their own return.
Frequently asked questions
Why do mobile home parks have such good tax benefits?
In the land-lease model most of the purchase price above the dirt is 15-year land improvements — pads, roads, utilities, fencing — which qualify for 100% bonus depreciation. That puts a far higher share of the purchase price into a bonus-eligible bucket than a typical apartment or office building.
Can you depreciate the land in a mobile home park?
No. Land is never depreciable. Only the improvements on it — pads, roads, utilities, fencing, landscaping, structures — can be depreciated, which is why the land-to-improvements allocation drives the entire tax outcome.
How can a GP get a depreciation allocation with no money invested?
If the GP is personally liable on recourse acquisition debt, that debt is allocated to the GP under §752 and counts as at-risk under §465, creating basis to absorb losses. The allocation must also have substantial economic effect under §704(b).
Should I allocate purchase price to goodwill when buying a park?
Only if the economics support it and you have modeled the trade. Goodwill is a §197 intangible amortized over 15 years and is not bonus-eligible, so shifting value there converts an immediate deduction into a slow one. It can reduce property taxes, which sometimes outweighs the timing cost.
Do RV parks get the same treatment?
Broadly yes. RV parks, self-storage and marinas share the characteristic that most of the improved value is 15-year land improvements rather than a long-life building shell.
Will a $4 million deduction eliminate my tax bill?
Almost certainly not on its own. The loss must clear basis, at-risk and passive activity limits, and then the §461(l) cap limits net business losses offsetting non-business income to $512,000 for joint filers in 2026. The excess carries forward.
The deduction is real. Whether you can use it is a different question.
We are frequently brought in after an investor has committed to a deal on the strength of a first-year deduction that their own return cannot absorb. The analysis takes an hour and it belongs before the wire, not after.
Stonehan offers a free 15-minute consultation. Bring the deal and your last return, and James will tell you what the deduction is actually worth to you.
Book a free 15-minute consultation →
James Bohan, CPA · Founder, Stonehan Accountancy, P.C. · Coeur d'Alene, Idaho · CPA since 2011 · MRED, University of Southern California · Fourth-generation real estate developer
This article is educational content and is not tax advice. Figures are illustrative. Actual allocations depend on appraisal, cost segregation and the terms of your fund documents.
