Tax Legal Services · Primary-source case analysis

Crane: Mortgage Debt Enters Both Property Basis and Amount Realized

By Aneeta Mishra and Timothy Chan

Published September 13, 2026

Crane v. Commissioner addressed depreciation, basis, and gain when property was acquired and later sold subject to an unassumed mortgage.

Property meant more than the owner's equity

The inherited asset's basis was not reduced to zero merely because the mortgage equaled its appraised value.

Depreciation followed the full property basis

The taxpayer had claimed depreciation while operating the encumbered apartment building.

The mortgage counted on disposition

Selling the property subject to the debt produced an amount realized that included the mortgage as well as the cash received.

Consistent treatment prevented a mismatch

The Court linked the basis and disposition rules so depreciation deductions and sale gain reflected the same property interest.

Key takeaways

• Trace acquisition basis before calculating gain.
• Identify assumed and nonrecourse debt attached to the property.
• Reconcile prior depreciation with adjusted basis.
• Include debt relief in the disposition analysis where governing law requires.