Mobile homes, or prefabricated homes built in factories, are usually placed permanently in one location even though they retain the ability to be moved. For tax and accounting purposes, its depreciation due to wear and tear is computed yearly based on cost, salvage value and estimated useful life. Different mobile homes have different costs, which is why annual depreciation figures vary, but the straight-line method is a common way of computing yearly depreciation for mobile homes. Figuring annual depreciation is not a difficult task, but if you are uncomfortable with your figures, consulting a tax specialist or accountant would be a good idea.
The cost of a mobile home plus other charges, such as sales tax, freight, installation and testing fees, is the basis for computing depreciation. Cost would include cash or credit payments plus any amount of property you exchanged for the mobile home.
Salvage value refers to estimated value of property at the end of its useful life. In the case of a mobile home, it is the amount you expect to get if you sell the home after you can no longer use it productively. Salvage value is estimated when you acquire the property. An easy way to estimate salvage value is to ask a salvage shop how much it would pay for the mobile home at the end of its useful life.
Estimated Useful Life
Estimated useful life of a mobile home is used as basis to determine how long it must be depreciated. Depreciation starts from the time the mobile home was manufactured and is ready for use but should continue throughout its productive life. For tax purposes, the U.S. Internal Revenue Service's general depreciation system guidelines give buildings or structures, including a mobile home, an estimated useful life of 27.5 years.
Straight-line method of computing depreciation is done by deducting the salvage value of the mobile home from its cost, and then dividing the difference by its estimated useful life of 27.5 years. For example, a mobile home that cost $100,000 with a salvage value of $5,000 would have an annual depreciation of $3,454.54, or the result of $100,000 minus 5,000 divided by 27.5.
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