How am I making up a scenario here? If that is the the way the tax rules are, fine, but then can we at least agree that it is not reasonable because the gain on the business side is partly based on the improvements on the personal side? The IRS says to treat each side separately, fine, no problem, but then all of a sudden when I sell the property, I have to assume each side gained in value the same % with no regard to how the improvements might have increased the value of one side more than the other?
There are other situations where the IRS allows some subjective estimate of property values, like when you convert a personal property to a rental property and you have to estimate a fair marker value when you begin to depreciate it.
