Selling Your Mobile Home Park: Spread the Gain Across Years
A park sale usually carries two layers of tax: appreciation on the land and recapture of years of depreciation on the infrastructure. A structured installment sale spreads most of both. Here is the math on a $5M park, by state, and the parts that stay in year one.
On a $5,000,000 mobile home park with a $1,500,000 adjusted basis after $1,000,000 of straight-line depreciation, spreading the gain over 10 years cuts the total tax from $1,320,957 to $1,029,726 in California, and from $892,353 to $705,812 in a state that does not tax the gain. Park sellers usually carry two layers: appreciation on the land, and unrecaptured §1250 gain from years of depreciation on roads, utility lines, pads and the clubhouse.
Go deeper: mobile home park sale taxes, resident rights and carrying the note on Big Sale Tax.
A $5M park sale: all at once vs. spread over 10 years
Price: $5,000,000. Adjusted basis $1,500,000 after $1,000,000 of straight-line depreciation (unrecaptured §1250 gain), so $2,500,000 of appreciation on top. Tenant-owned homes only.
How these were run: married filing jointly, $150,000 of other taxable income every year, an investor (not a real estate professional), so the 3.8% net investment income tax applies; 2026 federal and state tables applied to every year; federal alternative minimum tax included. In the spread version the whole price is paid in 10 equal annual installments and the unrecaptured §1250 gain is recognized first, as Treas. Reg. §1.453-12 requires. Washington's capital gains excise does not apply to real estate. Interest on the unpaid balance is extra ordinary income and is not in these figures. Same engine as our calculator, so you can rerun it with your own numbers.
What is the tax bill on your sale going to be?
Send me the sale price and rough basis. Within one business day I'll email you the actual number and the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation. Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
What is specific to a park sale
- Land improvements. Roads, water and sewer lines, electrical pedestals and pads are usually 15-year property. If they were depreciated faster than straight line (the default 150% method, or bonus depreciation), the excess over straight line is §1250 recapture income: ordinary, and taxed in the year of sale under §453(i). The straight-line part is unrecaptured §1250 gain, taxed at up to 25%, and it can be spread.
- Park-owned homes are depreciable property; recapture on them can land in year one. Parks with many park-owned homes put more of the price in that bucket.
- Equipment (maintenance vehicles, office equipment, pool equipment) is §1245 property: ordinary income in year one.
- Tenant deposits and prepaid rent the buyer takes over are liabilities assumed, which affect the amount realized and the payment math.
- Allocation. The split between land (not depreciable), improvements and personal property drives the year-one number. Agree it in the purchase agreement.
What can be spread, and what is taxed in year one anyway
- Appreciation on land and buildings: long-term capital gain, taxed federally at 0%, 15% or 20%. Spread across the payment schedule.
- Unrecaptured §1250 gain (the straight-line depreciation you took on buildings and other real property): taxed federally at up to 25%. It is also spread, but it comes out first, in the earliest payments (Treas. Reg. §1.453-12).
- Recapture income (§1245 personal property, and any depreciation on real property above straight line, such as bonus depreciation on land improvements): ordinary income in the year of sale, even if no cash arrives that year (IRC §453(i)). A cost segregation study moves more of the price into this bucket.
- Interest on the deferred payments: ordinary income each year it is paid.
How the price is allocated between land, buildings, land improvements and personal property decides how much lands in each bucket, so settle it in the purchase agreement.
Structured installment sale or 1031 exchange?
A 1031 exchange defers the whole gain, recapture included, but only if you buy more real estate of equal or greater value and keep owning it. A structured installment sale fits when you want out: retiring, simplifying an estate, or done with tenants and debt. The two also combine. If you exchange part of the proceeds, cash you take at closing is taxable boot in the year of sale, while the part paid out under a structured installment sale is reported as it arrives. If an exchange is already under way, the exchange agreement limits when you can touch the money (Treas. Reg. §1.1031(k)-1(g)(6)), so talk to your qualified intermediary and CPA before changing course.
The rules that keep the deferral intact
- The $5 million line (§453A). If more than $5,000,000 of installment notes from sales over $150,000 are outstanding at year end, an annual interest charge applies to the deferred tax on the excess. Many structures are sized to stay under it.
- No borrowing against the note (§453A(d)). Pledging the installment obligation as collateral is treated as receiving payment.
- Related buyers (§453(e)). If you sell to a related person and they resell within two years, the deferral can accelerate.
- Electing out is a one-way door (§453(d)). The election is due with the return and can be revoked only with IRS consent.
- Earn-outs. A price that depends on future results is a contingent payment sale: with a stated maximum price, basis is recovered as if the maximum is paid; with only a fixed period, evenly over that period; with neither, over 15 years (Treas. Reg. §15a.453-1(c)).
How the structured version works
The buyer pays the full price at closing. The part you choose to defer goes to an assignment company, which funds your payment schedule with a fixed annuity from a highly rated life insurer. You pick the schedule: level payments, a delayed start, a lump in a later year, or a mix. The buyer gets clean title on day one; you get a contract for future payments instead of one large taxable check. Your CPA reports each year's gain on Form 6252.
The trade-off, stated once: money you defer is not available to spend or invest elsewhere until each payment arrives, and the schedule is fixed once it is funded. Most sellers defer part of the price and keep the rest as cash at closing.
When it fits
- A large gain after a long hold, including years of depreciation.
- You want to exit real estate rather than exchange into more of it.
- The buyer pays cash at closing (all-cash or bank-financed).
- The purchase agreement is not signed yet, or can still be amended, so the assignment step can be written in.
When it does not
- You plan a full 1031 into replacement property.
- Most of the gain is recapture income from a cost segregation study, so it is taxed in year one anyway.
- You need every dollar of the proceeds in year one.
Find out what your sale is really going to cost you in tax, and what you can do about it
No retainer. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
Find out what your tax bill actually looks like before you sell, including the parts your CPA may not raise until the return is already being prepared.
Most people find out what they owe after the sale closes, when nothing can be changed. A short conversation now tells you the number, which layers apply to your situation, and which options are still open while the sale is still in front of you.
- What you will actually owe: federal, the 3.8% surtax, recapture and your state
- Which of those layers you can still do something about
- Whether spreading the sale changes the number in your case
Hans Goldstein · 213-414-2808 · Hans Goldstein: Tax & Exit Planning · This is an educational conversation, not tax advice. Bring your CPA in before you file.
Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Frequently asked
Q: I am exchanging into another park. Should I still consider a structured installment sale?
A: If a 1031 defers the whole gain and you want to keep owning parks, the exchange usually wins. A structured installment sale fits when you want out, or for the part of the proceeds you do not reinvest.
Q: My park has park-owned homes. Does that stop the structure?
A: No. It changes the allocation. Park-owned homes are depreciable property, and depreciation recapture on them can be taxed in the year of sale. The land and the rest of the gain can still be spread.
Q: Does rent control affect the tax treatment?
A: No. Local rent control affects price and the buyer pool, not how the installment method works.
Q: Is there a minimum size?
A: Insurer minimums start around $100,000 of deferred proceeds. Most park sales are far above that.
Related
- Selling real estate: the general rules
- Selling a self-storage facility
- Depreciation recapture explained
- Capital gains tax in your state
No retainer and no fee to you. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans's share is about 2.4%; no trail). It is built into the annuity pricing.
Educational, not tax or legal advice. 2026 figures. Your CPA or attorney should confirm the allocation, character and reporting for your sale.