you cost basis is what you paid originally plus
the cost of improvements plus
demolition plus
other capital costs the $1.3M other than real estate taxes and interest on any loans related to the property.
Do not reduce by depreciation that is handled separately and is subject to 1250 recapture
(IRC 266 requires that each year an election be made to add these costs to basis (specifically (b)(1)(ii)
Each of these items above needs to be allocated between the two units. The allocation can be done using any reasonable method. In addition, you get to report selling costs
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
how to enter in Turbotax > Business items> sale of business property>
check sale of business property / rental property. this may be the only method where you can and must report the depreciation taken allocated to the unit sold
then enter
description
dates acquired and sold (acquired I would use the original purchase date)
the sales price (note if this is an installment sale use form 6252 instead)
the allocated cost
the allocated depreciation
