I delved a little bit into the history of Sec. 280B. Originally Sec. 280B was enacted in 1976 to prevent deducting losses related to the demolition of "certain historic buildings", but it was amended in 1984 to apply to all buildings. Prior to 1976 (resp. 1984), apparently these demolition losses were allowed under Sec. 165(a). Reg. 1.165-3 was issued in 1960 to prevent people from deducting losses from buildings when they purchased the underlying land, intending to demolish the buildings. (In this case the buildings were actually just a nuisance realistically had zero or negative value.) Sec. 280B does not impliedly repeal Reg. 1.165-3, even though it was created to address a similar issue, so I think 1.165-3 is still good law.
Reg. 1.165-3 supersedes Reg. 1.167(a)-5. Reg. 1.167(a)-5 relates to the apportionment of basis between land and building. Reg. 1.165-3(a) says that none of the basis may be allocated to "nuisance" buildings (my own term). However, if some income is expected from the nuisance building, as much basis as represents (the PV of) the expected income is allowed to be allocated to the building. This depreciated over the same term as the income is expected to be received.
This seems "fair" because the developer, on net, only has income equal to the time-value of the rent received (barring other expenses).
Now adding my own wrinkle: The above was the state of the tax law before the creation of Sec. 168 in 1981. As far as I can tell, Sec. 168 makes MACRS (formerly ACRS) depreciation obligatory except in the case of depreciation which is not referenced by a term of years (e.g. unit-of-production), and some other cases which are not relevant here. MACRS depreciation requires buildings to be depreciated over 27.5 years, 30 years, 39 years, or 40 years -- no other options.
Specifically, the 3-year depreciation of the example under Reg. 1.165(a)(2) is not allowed under MACRS. Since statutes are of a higher authority than regulations, Sec. 168 "wins" in this conflict.
So, using the example from Reg. 1.165(a)(2), the developer would allocate $2,850 (the PV of the $3,600 expected rent) to the basis of the building, but would be required under Sec. 168 to depreciate that over 27.5 (or more) years, even though demolition is planned after the end of three years. The depreciation deduction would be about $300, and the remaining $2,550 would then be added to the basis of the land according to Sec. 280B.
This seems odd, but after digesting the relevant statutes and regulations, it seems to me correct according to the law.