Selling a Mobile Home Park: Taxes, Resident Rights and Carrying the Note

Why a park sale is mostly land gain

Buyers of mobile home parks pay for rent-paying dirt. The land, often most of the price, can never be depreciated (IRS Publication 946, 2025), so its whole appreciation is long-term capital gain at 0%, 15% or 20%, with 20% above $613,700 of taxable income for joint filers (Rev. Proc. 2025-32, 2026; see the rate table). Compare an apartment building, where the structure is most of the cost and decades of depreciation build a large 25% layer.

In our example, a park bought in 2004 for $1,800,000 sells for $6,500,000. Of the $4,822,000 gain, $4,000,000 is ordinary long-term gain; only $822,000 traces to depreciation. A Colorado couple pays $1,408,117, an effective 29.2%: $1,017,653 federal, $178,296 of 3.8% NIIT (IRC 1411, 2026) and $212,168 at Colorado's flat 4.4% (C.R.S. 39-22-104, 2026).

What is depreciable in a park, and how each piece is taxed

• Roads, pads, curbs, fencing, water and sewer lines. Improvements made directly to land are 15-year property (Publication 946, 2025). They are Section 1250 property, so straight-line depreciation is taxed at up to 25% (IRC 1(h)(1)(E), 2026).
• Park-owned homes. Publication 946 lists a mobile home rented as a dwelling as residential rental property, 27.5 years. That makes the homes Section 1250 property in the 25% layer, not 1245 equipment, unless you claimed bonus or a shorter life on them.
• Clubhouse, office, laundry building. 39-year nonresidential property (IRC 168(c)).
• Mowers, golf carts, office equipment. Section 1245 property, taxed as ordinary income up to the depreciation taken (IRC 1245).

Recent utility work is where ordinary recapture appears. Bonus depreciation is not straight-line for recapture purposes, so on a water system written off in 2021 the excess over straight-line, about $133,000 in our example, is ordinary income under IRC 1250(a). Older infrastructure works the other way: 15-year property bought in 2004 is fully depreciated, straight-line has caught up, and its depreciation sits entirely in the 25% layer.

Resident notice and purchase rights

Several states give residents a chance to buy the park before an outside sale, and the timelines can push a closing into the next tax year. Three examples, checked against the statutes:

Build these windows into your calendar. A sale signed in September can slip into January, moving the whole gain into another tax year, which may help or hurt. Resident groups that do buy often need the seller to carry part of the price. A sale to residents is a sale to unrelated buyers, so any suspended passive losses are freed as usual.

Seller financing: how the tax is spread

Seller financing is common in park sales, especially smaller parks and resident buyers. Under the installment method you pay tax on each principal payment in proportion to your gross profit ratio (IRC 453). Two rules shape year one. Ordinary recapture is taxed in the year of sale no matter what you collect (IRC 453(i)). And each payment carries the 25% layer out first, before ordinary capital gain (Treas. Reg. 1.453-12).

In our second example the couple takes 25% down and a five-year note. The $133,000 of recapture and the $689,000 25% layer land in 2026; each later year adds $703,350 of gain. Total tax is $1,329,026 against $1,408,117 for cash, $79,091 less in nominal dollars, with most of the payoff in timing. The note stays under the $5 million face amount that triggers the IRC 453A interest charge (IRC 453A(b)(2), 2026). Interest must be at least the applicable federal rate (IRC 1274), and it is taxed as ordinary income. Model your own schedule with our seller financing tax calculator.

Protecting the note

You become the lender on a business you know well, which is an advantage. Protect it like a bank would:

• A meaningful down payment, so the buyer has real equity at risk.
• A first-position deed of trust or mortgage on the land and improvements, plus an assignment of rents.
• A personal guarantee from the buyer's owners, and a UCC lien on park-owned homes and equipment.
• Interest at or above the AFR, amortization with a balloon, acceleration and due-on-sale clauses, default and cure terms, and prepayment rules.
• Covenants and reporting: annual rent rolls, financial statements, proof of property tax payments, and casualty and liability insurance naming you.

If the buyer defaults and you take the park back, IRC 1038 limits the gain you recognize on repossession of real property (IRC 1038). Our default and repossession page walks through it, and seller financing covers term sheets.

1031 and the other exits

Land, roads, utility lines and permanently affixed buildings are real property for a 1031 (Treas. Reg. 1.1031(a)-3), and since 2018 only real property qualifies (IRC 1031). Park-owned homes are the open question: a home titled like a vehicle and not permanently affixed may be personal property, which is taxed as a separate sale even inside an exchange. Many sellers sell the homes to residents before the park closes. See our 1031 exchange analysis and 1031 vs installment sale.

Owners of long-held parks should also weigh holding for the step-up at death, an Opportunity Zone fund for the capital gain, or a charitable remainder trust. The self storage page shows the opposite case, a site heavy in bonus-depreciated paving.

To compare cash, a note, a 1031 and the rest with your park's numbers, get the Big Sale Tax Analysis.

Run your own numbers

Frequently asked questions