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Outside basis explained

Updated over 2 weeks ago

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

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

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