A manufactured housing community is more than a building. It is land, site infrastructure, sometimes homes you own, sometimes notes receivable, and whatever intangible value sits on top. Each of those is allocated, depreciated and taxed differently, and the split you agree at closing governs your tax position for the whole hold and again at the exit.

This article describes general practice and cites the IRS form and its instructions where noted. It is not tax, legal or accounting advice. Asset classification, recovery periods, allocation and exchange treatment all depend on the specifics of the transaction and the taxpayer. Engage your CPA before the purchase agreement is signed, not after closing.

The Question Nobody Asks Early Enough

Before you depreciate anything, you have to answer one question: what did you actually buy? In a conventional commercial acquisition the answer is largely land plus a building. In a manufactured housing community the answer is a collection of quite different assets, and an unusually large share of the value sits in things that are neither land nor building.

Roads. Pads. Water and sewer distribution. Electrical pedestals and distribution. Clubhouse and amenities. Possibly homes you now own. Possibly a book of notes receivable if the seller financed home sales. And whatever the buyer paid above the sum of those parts.

That composition is why this asset class allocates differently, and why the allocation deserves more attention than it usually gets.

Form 8594 and the Residual Method

The mechanics are set by federal tax law and there is a form.

IRS Form 8594, Asset Acquisition Statement Under Section 1060, requires purchase price to be allocated across seven asset classes, numbered I through VII, using the residual method described in Section 1060 and the associated regulations. Both buyer and seller file the form with their own returns for the year the sale occurred. It is not filed separately or in advance.

The form itself asks two questions worth noting before you sign anything. Whether the purchaser and seller provided for an allocation of the sales price in the sales contract or another written document. And whether the aggregate fair market values listed for each class are the amounts agreed in that contract.

Which means the allocation is a term of your deal, not a filing you handle afterwards. If the purchase agreement is silent, you and the seller will each file your own numbers, and mismatched filings are the kind of thing that draws attention.

The form also asks whether the buyer purchased a covenant not to compete, or entered into a lease, employment contract, management contract or similar arrangement with the seller, and requires a statement specifying the type of agreement and the maximum consideration. Worth knowing if you are keeping the previous owner on to manage through a transition.

How the Classes Might Map to a Community

Commercial tax guidance describes the seven classes broadly as follows. The right-hand column is illustrative of where community assets may fall, not a classification you should rely on. Where any specific asset sits is fact-dependent and is a question for your CPA.

Two rows there are specific to this sector and both are easy to get wrong.

1. Chattel notes are a receivable rather than part of the real estate. If the seller financed home sales and you are acquiring that book, it has its own place in the allocation and its own tax character.

2. Homes may be inventory or they may be fixed assets, depending on whether you hold them for sale or for rent. That distinction, which we cover from the operational side in our guide to park-owned homes, has an accounting consequence at acquisition as well as during the hold.

Where the Value Actually Sits

This is the part specific to manufactured housing, and it is the reason cost segregation gets discussed so much in this sector.

The Real Estate CPA's analysis of RV and mobile home park acquisitions sets out the components:

• Land. Not depreciable. Every dollar allocated here reduces your depreciable basis.

• Site infrastructure. Roads, pads, utility hookups, sewer systems, electrical distribution. Described as land improvements at 15-year MACRS and bonus eligible.

• Park-owned homes and units. Described as personal property at 5 or 7-year MACRS depending on classification.

The firm's observation is that reclassification percentages on parks are typically higher than standard multifamily, because so much of the value sits in site infrastructure rather than vertical construction.

That is the structural point. A garden apartment complex is mostly building, depreciating over a long period. A manufactured housing community holds much more of its value in land and land improvements.

Whether the recovery periods above apply to your specific assets, and whether pursuing acceleration produces a benefit worth having, depends on the assets themselves, your tax position, your hold period and your exit plan. Take it to your CPA rather than assuming.

The Allocation Is Negotiated, and Nobody Tells Buyers That

Here is what catches first-time buyers. The allocation is not a technical exercise your accountant performs afterwards. It is a negotiation, and the other side wants the opposite of what you want. You want value in shorter-lived assets, because site infrastructure and personal property depreciate faster than land, which does not depreciate at all, and faster than goodwill, which amortises over a long period.

The seller wants value in goodwill, because goodwill receives capital gains treatment while depreciable assets are subject to depreciation recapture taxed at ordinary rates. A seller who has depreciated site infrastructure for a decade faces recapture regardless of how long they held it.

Commercial tax commentary puts it plainly: an allocation shifting value from goodwill to equipment saves the buyer money and costs the seller money. It is a real term with real economic value, and it gets treated as an afterthought because it arrives at the end of a process where everyone has spent three months arguing about price.

So negotiate it in the purchase agreement, alongside price. Get your CPA to classify the asset categories before closing, because afterwards the number in the contract is the number you have. And remember the seller is filing too  both parties file Form 8594, and two different sets of figures is not a subtle thing.

What Follows You to the Exit

The allocation is not a one-time event. It determines your position when you sell. Depreciation taken during the hold is recaptured at disposition. Cost segregation firms describing this note that accelerated depreciation on shorter-lived assets produces a larger recapture exposure at sale, with the character of the gain depending on the asset and the applicable rules. That is a question for your CPA rather than a general rule you can apply from an article.

The broader point stands regardless: acceleration at the front end has a consequence at the back end, and both need modelling.

The Real Estate CPA frames the planning question directly: if you are acquiring with the intent to exchange out eventually, model the cost segregation with the exit in mind, because the acceleration is worth it if the time value of the front-end deduction beats the recapture, and you have to actually run the numbers rather than assume.

Keep the study in the file. The same source notes that a cost segregation study is also the substantiation if the allocation is later examined. A study you commissioned and then lost during a staff change is a study you did not commission.

Section 1031 and the Basis Problem

Many operators in this sector exchange rather than sell outright, and it changes the arithmetic in a way that catches people.

This is the most nuanced area in the article and the one most worth taking to a professional. The following describes how cost segregation firms explain the mechanism; the interaction between carryover basis, excess basis, cost segregation and bonus depreciation is fact-dependent and should be verified for your transaction.

Those sources describe it as follows. Under IRC § 1031(d), the basis of replacement property is not the full purchase price. It is a carryover basis derived from the relinquished property, adjusted for any gain recognised and any additional funds contributed, commonly called boot. Form 8824 reports the exchange, and the basis of like-kind property received appears in Part III.

Two consequences are commonly drawn from that.

1. Your depreciable basis on the replacement may be lower than the price you paid, being carryover basis plus excess basis rather than acquisition cost.

2. Bonus depreciation is described as applying only to the excess basis, meaning the additional funds used to acquire the replacement rather than the carried-over portion.

An operator modelling a replacement acquisition as though it were a fresh purchase risks overstating the depreciation available. Run it with your CPA using the exchange mechanics rather than the purchase price.

Entity Structure and Disposition

Most portfolios above a few properties hold each community in a separate legal entity, which affects how a sale works.

Selling the entity is a different transaction from selling the assets. Different tax consequences on both sides, different treatment of whatever liabilities sit inside. Which route is available depends on how the community was acquired, what the entity holds, and what the buyer will take on.

Underneath that sit two unglamorous operational points. Your books have to support an entity-level sale. If community financials have been kept without clean entity separation, producing what a buyer's diligence team asks for turns into a reconstruction project at exactly the moment you have least time for it. Where the underlying system handles property accounting across entities natively, that is a report rather than a scramble.

And your fixed asset register has to be current. Buyers ask for it, lenders ask for it, and the allocation you agreed at acquisition should still be traceable through the asset records years later. Our guide to NetSuite Fixed Asset Management covers how registers and depreciation schedules work for property portfolios.

What to Do, and When

Before the LOI. Get a rough view of how the asset composition will allocate. It changes what the deal is worth to you, which is useful to know before you name a number.

Before the purchase agreement is signed. Have your CPA classify the asset categories, and put the allocation in the contract. This is the moment with the most leverage and the least attention paid to it.

At closing. Capture the allocation, the study if you commissioned one, and the supporting valuations. Put them somewhere that survives a staff change, which for most operators means somewhere other than an inbox.

During the hold. Keep the fixed asset register current, with additions attributed properly. Home purchases, road resurfacing and pedestal replacement do not all land in the same place.

Before the exit. Model the recapture alongside the sale price. A number that looks good gross can look different net, and finding that out at the closing table is a bad way to find it out.

Conclusion

Purchase price allocation is one of the most consequential accounting decisions in a manufactured housing acquisition, and it is usually made under time pressure at the end of a process where everyone is focused on price.

Three things worth carrying away.

1. The allocation is a deal term. Form 8594 asks whether buyer and seller agreed one in the contract. Negotiate it there, where you have leverage, rather than filing your own version afterwards and hoping the seller's matches.

2. This asset class allocates unusually. So much of the value sits in land and land improvements rather than a building that the classification exercise matters more here than in most commercial real estate. That is a reason to engage a CPA who has done it before in this sector.

3. Model the exit at the entry. Acceleration at acquisition has consequences at disposition. Whether that trade is worth making depends on your assets, your hold period and your plans, and it is a calculation rather than a rule.

None of which is a substitute for professional advice. This is the area of manufactured housing operations where the gap between a reasonable-sounding approach and the right one is widest, and where getting it wrong costs the most.

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Frequently Asked Questions

1. What is Form 8594 and do I need it for a mobile home park purchase?
Form 8594 is the Asset Acquisition Statement Under Section 1060. It allocates purchase price across seven asset classes using the residual method, and both buyer and seller file it with their own returns for the year the sale occurred. The form asks whether the parties agreed an allocation in the sales contract, which is why the allocation should be negotiated as a deal term rather than handled afterwards.

2. How is a manufactured housing community allocated for tax purposes?
Across the seven Form 8594 classes, with the specific placement of any asset depending on its facts. Commercial tax guidance describes site infrastructure such as roads, pads and utility systems as land improvements, and park-owned homes as personal property, with different recovery periods. Homes held for sale may be treated differently from homes held for rent, and chattel notes are a receivable rather than part of the real estate. Confirm the classification of your specific assets with your CPA.

3. Why does cost segregation come up so often with mobile home parks?
Because an unusually large share of the value sits in site infrastructure rather than in a building. CPA commentary on the sector notes that reclassification percentages on parks are typically higher than standard multifamily for that reason. Whether pursuing it makes sense depends on your assets, tax position, hold period and exit plan.

4. How does a 1031 exchange affect depreciation on the replacement property?
Cost segregation firms describe the mechanism as follows: under IRC § 1031(d) the basis of replacement property is a carryover basis from the relinquished property adjusted for gain recognised and additional funds contributed, rather than the full purchase price, with bonus depreciation applying only to the excess basis. The interaction is nuanced and fact-dependent, so verify it with your CPA rather than modelling a replacement as a fresh purchase.

5. When should I involve a CPA in an acquisition?
Before the purchase agreement is signed. The allocation is a contract term, it drives the Form 8594 filing, and the filing drives depreciation for the whole hold and the recapture position at exit. Classifying asset categories after closing means working with a number already fixed in the contract.