On sale of a farm or ranch, it can be important how much of the transaction is attributable to the residence and how much to the rest of the farm. The question can be significant for purposes of sale and possible tax free reinvestment of the residence portion of the transaction, sale of the residence after age 55, and disallowance of any loss on the residence part of the transaction.

If the residence is sold as a part of the entire farm or ranch, it may also be necessary to apportion the remaining basis between the residence and the soil, neither of which is depreciable, if that allocation has not already been accomplished. The apportionment of basis may have been severely restricted by virtue of earlier allocations of basis among depreciable items of property.