What is the depreciable life of a rented trailer?

Posted by Lee Reams Sr. on

A trailer that includes kitchen, bathroom and sleeping facilities is rented long term to an unrelated party for use as their primary residence. What is the depreciable life of that trailer? Is it 5 years or 27.5 years?  

A 27.5-year class is assigned to residential rental property (Sec 168(c)). Residential rental property is defined as a building or structure of which 80% or more of the gross rental income is from dwelling units. A dwelling unit is a house or apartment that provides living accommodations in a building or structure, but doesn't include a unit in a hotel, motel, or other establishment more than half of the units in which are used on a transient basis (Sec 168(e)(2)(A)). Otherwise-qualifying residential rental property can include manufactured homes, and, if permanently anchored, mobile homes.

The five-year MACRS class includes depreciable personal property with a class life of more than four years and less than ten years (Code Sec. 168(e)(1)), such as information systems (computers); heavy general purpose trucks; trailers and trailer-mounted containers; breeding or dairy cattle; and certain assets used in the drilling of oil and gas wells, construction, the manufacture of textile yarns, apparel, and other finished goods and the cutting of timber.

Whether a trailer is 1245 or 1250 property was also addressed in Rev Ruling 77-291. In that Revenue Ruling, the determination depended on the way the trailers are attached to the land and on how permanently the property is designed to remain in place; i.e., whether they are buildings. Where the property isn't affixed to the land and remains at all times movable, it is considered 1245 property.

So, whether the property is 5-year-life property or 27.5-year-life property seems to hinge on whether the trailer is permanently anchored in place (27.5-year life) or remains mobile (5-year life).