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debtor. Rather, should the debtor default, the lender’s only
recourse is the institution of foreclosure proceedings with respect
to the property securing the debt. Accordingly, if the value of
the property securing the debt falls below the amount of the debt,
it is the lender, not the debtor, who bears the risk of loss.
Nevertheless, it is well settled that for tax purposes, nonrecourse
debt incurred to acquire property constitutes a part of the
debtor’s cost basis in the property it has purchased. See Crane v.
Commissioner, 331 U.S. 1, 14 (1947). Accordingly, the amount of
debt (even nonrecourse debt) increases the amount the
debtor/taxpayer may claim for depreciation with respect to
encumbered property. However, when the debtor disposes of the
property, the debtor must include in the amount realized from the
disposition of the property the amount of any remaining nonrecourse
debt to which the property is subject. Thus, if the debtor has
taken deductions (such as depreciation deductions) that have
reduced its basis in the property to an amount less than the amount
of the nonrecourse debt, the debtor must recognize gain at least to
the extent that its basis is exceeded by the amount of debt secured
by the property. See Commissioner v. Tufts, 461 U.S. 300, 307
(1983).
Minimum Gain and Minimum Gain Chargebacks
The aforementioned nonrecourse debt principles apply to
partnerships. If a partnership has acquired properties with
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