It depends. I have prepared returns in the past where clients did not know their allocation between land and building basis and had no discernable records such as a property tax bill. As a result, we allocated the entire selling price entirely toward the building.
The downside to this is that, when selling a rental, depreciation is recaptured, which results in less basis and more taxable gain. If you have a document such a a property tax bill that separates a different assessed values for land and building, one can take a ratio between land assessment /total assessment and building assessment/total assessment. This way you can report the correct basis for the land and correct basis for the building by using the same ratios.
By having separate values for land and building, this will result in a leaser amount for depreciation recapture for the building and more of a tax savings to you.
@fkhalilz
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