What it is
Outside basis is the tax cost of your ownership interest in Craft Pod. The Internal Revenue Service uses it to decide how much loss you can deduct and whether any distribution is taxable.
How it starts
Cash contribution creates dollar-for-dollar basis
Stock contribution carries over only its original basis not current market value
Your share of Pod liabilities also adds to basis
How it changes
Increases with your share of income and any additional capital you add
Decreases with losses you deduct and cash or property you receive from the Pod
Why it matters
Your basis sets the ceiling on bonus depreciation and other losses you can deduct right now. If basis is $1M and the Pod allocates $800K of first year depreciation you may use the full amount. If basis is $50K because you contributed low basis stock only $50K is currently deductible and the rest carries forward.
Simple example
Contributor type | Initial contribution | Starting basis | Year one depreciation | Deductible in year one | Suspended loss |
Cash investor | $1,000,000 | $1,000,000 | $400,000 | $400,000 | 0 |
Stock investor | $1,000,000 stock with $50,000 basis | $50,000 | $400,000 | $50,000 | $350,000 |
Suspended loss unlocks later when basis grows through future income or more capital.
Relationship to other rules
At risk limitation uses outside basis as its starting point
Passive activity rules decide where the loss can be applied
Excess business loss cap can delay large net losses after basis and at risk tests
Takeaways
Cash usually gives you higher immediate basis and larger deductible depreciation
Low basis stock still diversifies your position but may postpone some deductions
Our fund administrator tracks basis every year so you never claim more loss than the rules allow