Leverage is an important instrument for real estate owners and investors. Utilizing leverage appropriately can help enhance returns, build a diversified portfolio, strategically enter the market, and provide tax benefits. As the capital markets have become increasingly challenging, many lenders are requiring guarantees by the mortgagors. The use of a guarantee can drive surprising tax results. This article will concentrate on how mortgage debt affects the tax basis of acquired property, as well as the investment basis of real estate owners and investors in partnerships (note that real property held in different types of entities may yield varied outcomes).