Upon the death of her husband in 1932, Crane (plaintiff) became the beneficiary of an apartment building and lot. The building and lot were subject to a mortgage, consisting of a principal debt of $255,000.00 and interest in default of $7,042.50. The value of the property for estate tax purposes was the amount of the entire encumbrance, or $262,042.50. For the next seven years, Crane managed the property and collected rents for the mortgagee. During this time, she took deductions related to the property, including deductions for property depreciation. By 1938, the interest owed had increased and the mortgagee threatened to foreclose. At that time, Crane sold the property and received, after expenses, $2,500.00. In calculating her gain in the sale of the property, she believed that the term “property” referred to her equity in the building and lot. Under this theory, the property she acquired was the value of the building and lot less the amount of the mortgage. In other words, she had zero equity in the building, which she later sold. Crane found the amount realized in the sale to be $2,500.00 and the cost basis to be zero. Because the Tax Code requires reporting of only half the amount realized in the sale of a capital asset held for more than two years, Crane reported only $1,250.00 as taxable gain. The Commissioner (defendant), on the other hand, argued that “property” referred to the building and lot itself, not their equity. According to the Commissioner, the original basis was the 1932 appraisal value of $262,042.50 and, because Crane had taken depreciation deductions on the building, he adjusted the basis accordingly. He calculated the amount realized to include the principal amount of the mortgage in addition to the $2,500.00 net profit, totaling $257,500.00. The case was heard in the Tax Court to determine Crane’s taxable gain. The Tax Court held in Crane’s favor. The Court of Appeals reversed. The United States Supreme Court granted certiorari.