Crane v. Commissioner

Holding

A property owner's basis includes nonrecourse debt encumbering the property, and on disposition the amount realized includes the unpaid principal of that debt.

Facts

Crane inherited property subject to a nonrecourse mortgage. She later sold the property and reported only the cash she received above the mortgage as amount realized.

Reasoning

Chief Justice Vinson held that basis equals the full property value at inheritance, including the encumbrance, and amount realized on sale must reflect the mortgage relief. Footnote 37 famously cautioned about the limits of the holding when debt exceeds FMV - a caveat addressed in Commissioner v. Tufts.