Crane v. Commissioner

Crane (plaintiff) inherited an apartment building encumbered by a $255,000 mortgage plus overdue interest, with the estate-tax value set at the full encumbered amount ($262,042.50); she took depreciation deductions on the property for years before selling it for a net $2,500 above the mortgage balance, and calculated her taxable gain based on a theory that her "property" and basis were limited to her equity (effectively zero), yielding minimal taxable gain. The Commissioner (defendant) argued her basis was the full fair market value (adjusted for depreciation) and that the amount realized on sale included the full mortgage amount, not just the $2,500 cash boot; the Tax Court sided with Crane, the Court of Appeals reversed, and the Supreme Court granted certiorari.