Mobile Home Depreciation: IRS Rules, Basis, and Recapture

Mobile home depreciation follows one of two federal tracks under the Modified Accelerated Cost Recovery System (MACRS), and the track you land on depends on whether the IRS treats the unit as real property or personal property. A mobile home permanently affixed to a site and rented as a dwelling is depreciated straight-line over 27.5 years. A mobile home that stays movable, or that is used in a non-rental business, is depreciated over a shorter period and can qualify for Section 179 expensing and bonus depreciation. Everything else, from your first-year deduction to what you owe when you sell, flows from that single classification.

Real Property or Personal Property

The IRS draws a hard line between real and personal property, and the classification hinges on how permanently the unit is attached to the ground and how it is used.

A mobile home qualifies as residential rental real property when it is permanently affixed to a site and used as a dwelling. The IRS defines residential rental property as any building or structure, including a mobile home, where at least 80 percent of the gross rental income comes from dwelling units.¹ Permanence usually means the home sits on a poured concrete or masonry foundation with the axles, wheels, and hitch removed. Many states reinforce this by requiring the owner to retire the vehicle title and convert it to a real property deed before the home is legally treated as part of the land.

A mobile home stays personal property when it has not been permanently attached. Units resting on blocks or piers with wheels and axles still in place, or units that could be towed on short notice, fall into this category. The personal property label also applies when the mobile home is used in a non-rental business role, such as a temporary field office or a model unit in a sales operation.

You lock in the classification when you place the home in service. Pouring a permanent foundation years later creates a new placed-in-service date for that improvement and can require adjusting your schedule going forward. Getting the classification right from day one avoids the headache.

Depreciating a Mobile Home Classified as Real Property

Residential rental real property has one method and one recovery period: straight-line over 27.5 years under the General Depreciation System.² Divide the depreciable basis of the structure by 27.5, and that is roughly your annual deduction.

The first and last years are partial. Residential rental property uses the mid-month convention, treating the home as placed in service at the midpoint of whatever month you actually started renting it.² Place a $150,000 mobile home in service on March 20, and you get credit for 9.5 months that first year, not a full 12. The same logic applies in the year you sell or stop renting.

Real property classification shuts the door on accelerated deductions. Section 179 expensing and bonus depreciation are not available for residential rental buildings or their structural components.² The 27.5-year schedule is the only option for the structure itself, though certain site improvements and shorter-life components can be broken out through a cost segregation study.

Depreciating a Mobile Home Classified as Personal Property

Personal property classification unlocks much faster cost recovery. Instead of 27.5 years, the mobile home is assigned a shorter MACRS recovery period based on how it is used and what asset class it falls into. Park-owned homes in a mobile home park operation are commonly treated as 15-year property. A unit used as a temporary business office may fall into a different class. Confirming the right asset class with a tax professional is worth the effort.

A shorter recovery period also opens up the 200-percent declining balance method, which front-loads deductions into the early years and automatically switches to straight-line when that produces a larger deduction.³ The half-year convention generally applies, giving you half a year’s depreciation in year one and in the final year. If more than 40 percent of all personal property you place in service during the year goes into service in the last three months, the mid-quarter convention takes over instead and can reduce your first-year deduction.¹

Section 179 Expensing

Section 179 lets you deduct the entire cost of qualifying personal property in the year you place it in service. For 2026, the maximum deduction is $2,560,000, and the deduction begins to phase out dollar-for-dollar once total qualifying property purchases for the year exceed $4,090,000.⁴ The mobile home must be used more than 50 percent for business. Mixed use reduces the deduction by the personal-use percentage, and dropping below 50 percent business use in any year during the normal recovery period triggers partial recapture.

Bonus Depreciation

Any cost above your Section 179 limit, or that you choose not to expense under Section 179, can qualify for bonus depreciation. The One Big Beautiful Bill Act made the 100-percent additional first-year depreciation deduction permanent for qualified property acquired after January 19, 2025.⁵ Combined with Section 179, a qualifying personal-property mobile home placed in service in 2026 can potentially be written off entirely in year one.

Setting the Depreciable Basis

Before running any schedule, you need the dollar amount you are allowed to depreciate. That number is almost never the full purchase price.

When you buy a mobile home and land together, you must split the price between the structure and the land, because land cannot be depreciated.¹ The most common approach uses the ratio from your local property tax assessor’s valuation. If the assessor values the land at 20 percent and the structure at 80 percent, apply those percentages to your purchase price. A professional appraisal is another option and may be worth the cost when the assessor’s split looks unreasonable.

If you lived in the mobile home and later converted it to a rental, the depreciable basis is the lesser of the home’s fair market value on the conversion date or your adjusted basis at that time. Adjusted basis is what you originally paid, plus permanent improvements, minus any casualty loss deductions you previously claimed.² In a declining market, this rule can cap your depreciation at the lower number.

A mobile home you inherit generally takes a stepped-up basis equal to fair market value on the date the previous owner died, though the estate representative may choose an alternate valuation date in some cases.⁶

Land and Site Improvements

The structure is only part of the investment. Site work has its own rules, and handling it correctly can meaningfully raise your current-year deductions.

Land improvements like utility hookups, septic systems, driveways, drainage work, and permanent foundations are generally classified as 15-year property under MACRS.¹ They also qualify for the 150-percent declining balance method, which front-loads part of the deduction.

A cost segregation study breaks a real-property investment into its component parts, shifting costs from the 27.5-year bucket into 15-year land improvements and shorter-life personal property. The study requires a specialist and usually costs several thousand dollars, so it tends to pay off on higher-value properties.

For smaller items, the de minimis safe harbor election lets you expense purchases outright rather than depreciate them. With audited financial statements the threshold is $5,000 per invoice or item, and without audited financials it drops to $2,500 per item.⁷

Passive Loss Limits on the Deduction You Calculate

A rental mobile home often generates a paper loss once depreciation is factored in, and you may not be able to use that loss against your wages, business income, or investment returns. Rental activities are generally treated as passive activities, meaning losses can only offset other passive income.⁸

There is a partial exception. If you actively participate in managing the rental (making decisions about tenants, lease terms, and repairs rather than turning it all over to a management company) you can deduct up to $25,000 of rental losses against nonpassive income.⁹ You must also own at least 10 percent of the activity by value.

That $25,000 allowance shrinks as your income rises. It phases out at 50 cents per dollar of modified adjusted gross income above $100,000 and disappears entirely at $150,000.⁸ Married filing separately and lived with your spouse at any point during the year? The allowance is zero. Unused losses carry forward, offsetting passive income in later years or coming free when you sell the property in a taxable disposition.

If your income consistently exceeds $150,000 and you are not a real estate professional, aggressive depreciation on a rental mobile home will sit unused until sale. That changes the math on whether strategies like cost segregation make sense right now.

Reporting on Form 4562

Report depreciation on Form 4562, Depreciation and Amortization, for any year you place new property in service or claim a Section 179 or bonus depreciation deduction.⁴ The depreciation figure then flows to the schedule that matches how you use the mobile home. Rental properties go on Schedule E. A mobile home used in a non-rental business, such as a field office reported on a sole proprietorship return, goes on Schedule C.

Depreciation Recapture When You Sell

Every dollar of depreciation you claim reduces the tax basis of your mobile home. When you sell, the IRS recaptures part of that benefit by taxing a portion of your gain as ordinary income rather than at the long-term capital gains rate. How much depends on the original classification.

For a mobile home depreciated as real property, the recaptured depreciation is unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25 percent. Only the gain corresponding to straight-line depreciation actually taken gets this treatment; any gain above that is taxed at the regular long-term capital gains rate.

For a mobile home depreciated as personal property, the rules are harsher. The entire amount of depreciation previously claimed is recaptured as ordinary income under Section 1245 and taxed at your marginal rate, which can run as high as 37 percent. The faster write-off methods are aggressive on the front end, so the recapture hit on sale can be substantial. Accelerated deductions now versus higher taxes later is the core trade-off behind every personal-property depreciation strategy.

1
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
2
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
3
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
4
Internal Revenue Service. Instructions for Form 4562 (2025)
5
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
6
Internal Revenue Service. Publication 551 (2025), Basis of Assets
7
Internal Revenue Service. Tangible Property Final Regulations
8
Office of the Law Revision Counsel. 26 U.S. Code 469 – Passive Activity Losses and Credits Limited
9
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules