The Internal Revenue Code classifies all property you purchase as an investment or for personal use as a capital asset. This treatment extends to the purchase of a mobile home, regardless of whether you use it as a main home, an investment or for recreational use. All transactions involving the sale of a capital asset are subject to the capital gain and loss rules. These rules impose additional tax on gains; however, the tax rates are significantly lower than the rates the IRS imposes on ordinary income, such as wages you earn at work. Capital losses have limited usefulness in that they can reduce any amount of capital gains with the excess deductible from ordinary income up to $3,000 per year.
Mobile Home Basis
The key component for calculating the amount of gain or loss on the sale of the mobile home is its tax basis. The tax basis represents all costs you incur to purchase the home and to make permanent improvements. A permanent improvement will increase tax basis if it adds value to the mobile home or extends its useful life. For example, renovating the entire interior of the mobile home is a home improvement, whereas, replacing a broken window is not.
You calculate the amount of gain on the sale of a mobile home by subtracting its tax basis from the gross proceeds of the sale. The gross proceeds include the price you sell it for plus any other property or service you receive in the transaction. Additionally, if you are liable for an outstanding debt that relates to the mobile home, you must include in proceeds any amount of the debt for which the buyer assumes liability.
The Internal Revenue Code allows homeowners to exclude up to $250,000 of the resulting gain from capital gains tax if certain requirements are met. To qualify, the mobile home must be your main home, and you must own and live in the home for a total of two years during the five-year period immediately before the sale. The exclusion is only available if during the preceding two years you do not exclude the gain on another home sale. If your only residence is the mobile home, it will qualify as your main home. However, if you own two homes and can meet the two-year requirements for both, you must consider other factors before reaching the conclusion that it is your main home. Factors relevant for identifying the main home are the address at which you receive mail, the home's proximity to your workplace and the home's proximity to banks you ordinarily use.