Mobile homes are fabricated homes that are built in a factory then moved to a permanent location. While they retain the ability to be moved, it is not an easy procedure. So, despite being called “mobile” homes, we can’t say they are genuinely mobile. Moving them after living in them is next to impossible or extremely expensive to carry out. If you’re thinking about moving or buying a mobile home, you’ll want to know if it’s worth it. To help you make this decision, here are the steps to find out, “how much does a mobile home depreciate each year?”
Do mobile homes depreciate?
Unlike traditional homes, mobile homes are more likely to depreciate than appreciate over time. Without land, they are not considered real property. Instead, they fall into the category of vehicles or chattel property. For tax and accounting reasons, the depreciation caused by wear and tear is calculated every year based on salvage value, cost, and estimated useful life.
Definitions you’ll need to know:
The cost of the mobile home as well as other expenses, such as sales tax, installation, testing fees, and freight costs, are usually the basis for calculating depreciation. The cost would include credit or cash payments as well as any other properties you exchanged for the home.
Salvage value is the estimated price of the property after its use. For mobile homes, this value means the amount you get when you sell the home. You can ask a salvage shop how much they would be willing to pay for your home to get an idea of the value.
Estimated useful life is used as a basis to determine how long the mobile home should depreciate. Depreciation begins when the mobile home is manufactured and ready for use. The home continues to depreciate throughout its productive life. The straight-line method calculates the depreciation by deducting the salvage value from the cost, then dividing the difference by its estimated useful life.
Is there a chance it could appreciate?
Now, while it’s a given that mobile homes depreciate, there are times when they do appreciate in value. The location of a home has a tremendous impact on its value. This applies to a mobile home as well. The better the location, the more likely the home will appreciate. The condition of the mobile home can determine its appreciation as well. If the mobile home has been well-maintained with additions and renovations, the value could increase above the initial buying price.
Calculating: how much does a mobile home depreciate each year?
Not all mobile homes are the same. Because their prices vary considerably, they depreciate differently as well. The standard method used to calculate the amortization of mobile homes is the straight-line method. Determining this value and calculating it is not hard to do but of course, you can always call in a tax specialist or an accountant to do it for you.
The first thing you need is the year you purchased your mobile home. You need to know the exact sale price of the mobile home. If the mobile home is furnished, you should reduce the purchase price to 80% and if it is unfurnished, reduce it to 95%. For instance, if you bought the mobile home for $20,000, the initial depreciation amount would be $19,000 if the home is unfurnished and $16,000 if furnished.
Once you have that, subtract 5% from the depreciation price for every year you have owned the mobile home. For instance, If you have lived in your mobile home for two years, the value has depreciated by 10%. Let’s go back to the $20,000 example. The market value will be $17,000 if the home is unfurnished and $14,400 if the home is furnished. Furnished homes are allowed a maximum depreciation rate of 35% while unfurnished homes are allowed a maximum of 50%.
Get an appraisal from the county auditor. If you don’t want to trouble with numbers, you could just opt to get a market value price online or from the county auditor instead of using the depreciation calculations. The value you receive from the auditor is what’s used to determine the tax rate.
How much did your home depreciate?
Now that you have everything you need to know, you can do the calculations to determine how much your mobile home depreciates each year. Of course, you can also consult a professional and have them give you a correct finding. Whichever you decide, knowing the value of your home can help you decide if it’s the right time to move, rent, or sell your mobile home.