I re-read the instructions for Form 4797. First of all, the statement that addresses SALE allocation is under the heading, Special Rules. I don't think that it's necessary to allocate the sale when you already know (as you already said) how much you depreciation you took on the sale of a rental property consisting of a single building on a piece of land. The purpose of allocating the SALE is to determine how much depreciation you took when selling multiple assets. For example, you purchase a building on a piece of land, develop that into a business by adding accessory buildings and equipment such as sheds or garages (that may or may not be used in the business) and then you sell it as a whole in one transaction. Because the buildings and equipment were put into service at different times and may have been subject to different methods and periods of depreciation that may have been complete or partial, you would need to allocate. Because allocation falls under Special Rules, I really don't think that SALE allocation is required in the typical case where a homeowner converts his primary home to a rental property and then sells it somewhere down the road. Fortunately, CPAs have found this special rule useful to them and they have used it as a loophole in order to get their clients better outcomes. This is demonstrated in cases where the FMV land-to-building ratio thus, the depreciation ratio, changes over time and with different market conditions. I'm not even going to try doing that, 'cause I'd be the one to get audited.
