Tax Legal Services · Primary-source case analysis

Commissioner v. Tufts: Nonrecourse Debt Is Included in Amount Realized

By Aneeta Mishra and Timothy Chan

Published April 30, 2026

Tufts aligns the disposition consequences of nonrecourse financing with the basis benefit the taxpayer received when acquiring and depreciating the property.

The mortgage exceeded the property’s value

A partnership transferred an apartment complex subject to a nonrecourse mortgage larger than its fair market value. The partners argued amount realized should be limited to value.

Crane had included nonrecourse debt in basis

Because the full loan financed acquisition and was included in basis, taxpayers received depreciation benefits on that amount even though they had no personal liability.

Disposition must account for the full discharged obligation

Relief from the nonrecourse mortgage was part of the consideration received. Limiting amount realized to market value would create an asymmetry between basis deductions and disposition gain.

Disposition

The Court reversed the appellate judgment and required inclusion of the outstanding mortgage balance. Separate rules govern recourse debt and cancellation-of-debt issues.

Key takeaways

• Classify debt as recourse or nonrecourse.
• Trace debt included in basis and depreciation.
• Compute relief from liabilities in amount realized.
• Analyze cancellation-of-debt consequences separately where applicable.