Tax Legal Services · Primary-source case analysis

Crane: Why Depreciation Allowed or Allowable Affected the Sale Gain

By Aneeta Mishra and Timothy Chan

Published May 25, 2026 · Updated October 18, 2026

Decision: Crane v. Comm’r, 331 U.S. 1 (1947).

The basis adjustment did not stop at the deductions actually claimed. The distinction matters when reconstructing the transaction from tax returns, valuation records and sale documents. Crane, 331 U.S. at 3–5, 11–16.

The return history did not settle the allowable adjustment

The taxpayer had claimed $25,500 in depreciation during her ownership. The Commissioner calculated $28,045.10 as allowable depreciation at the stipulated rate. Those are different figures. The historical statute reduced basis by deductions allowed, but not less than the amount allowable. Crane, 331 U.S. at 3–4 & nn.2, 5, 11.

Zero equity did not establish a zero depreciation basis

The inherited property’s appraised value was $262,042.50, equal to the debt and accrued interest at acquisition. Of that value, $207,042.50 was allocated to the building and $55,000 to land. The Court treated the property rather than the owner’s net equity as the starting basis. Its reasoning did not make the land depreciable. Crane, 331 U.S. at 3–4, 6–11.

The claimed economic loss lacked the necessary factual finding

Crane argued that only the lender bore the capital loss. The Court found no Tax Court finding or record evidence that the property had become worth less than the lien. The buyer’s willingness to take it subject to the increased lien and pay cash did not establish that premise. The Court expressly declined to decide the different depreciation problem it described for property clearly worth less than an unassumed mortgage. Crane, 331 U.S. at 11–12.

The Court linked past deductions to the gain computation

On April 14, 1947, the Supreme Court affirmed the Second Circuit. It rejected an approach that took depreciation during ownership and then excluded the allowable deductions when computing sale gain. This page addresses that historical basis-adjustment problem. The companion analysis examines the separate proceeds-and-mortgage calculation. Current transactions require their own tax-year rules and records. Crane, 331 U.S. at 15–16.

Key takeaways

• Reconcile depreciation actually claimed with the amount allowable under the governing rules.
• Keep building and land allocations separate.
• Preserve valuation evidence rather than assuming negative equity proves who bore the loss.
• Review the actual tax-year law before applying a historical calculation.