Tax Legal Services · Primary-source case analysis

Crane v. Commissioner: Mortgage Debt Entered Both Basis and Amount Realized

By Aneeta Mishra and Timothy Chan

Published May 25, 2026

Crane v. Commissioner addressed an apartment building inherited subject to a nonrecourse mortgage, depreciation claimed during operation, and a later transfer for cash subject to the outstanding debt.

The inherited property was fully encumbered

Crane inherited the apartment building when its value equaled the mortgage and did not personally assume the debt. She operated it, reported income, and claimed depreciation before selling it for cash subject to the mortgage.

Basis meant the property, not equity alone

For depreciation and gain, the unadjusted basis began with the property’s value without subtracting the mortgage. Depreciation allowances then reduced that basis under the governing statute.

Debt relief entered the amount realized

On sale, the amount realized included both the cash received and the outstanding mortgage taken subject to by the purchaser. Personal assumption of the debt was not required for that treatment.

The tax determination was upheld

The Court affirmed inclusion of the mortgage and rejected a zero-equity basis theory. The holding became foundational for analyzing liabilities in property transactions, subject to later statutory and case-law refinements.

Key takeaways

• Separate fair market value, equity, and adjusted basis.
• Track depreciation allowed or allowable before disposition.
• Include qualifying liability relief when calculating amount realized.
• Review later nonrecourse-debt and partnership rules for the transaction at hand.