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xbruce-smith
New Member

Treatment for Capital loss on Franchise License

I bought a Franchise development license for 3 stores and never open any stores for business.  I paid 50k for the 3 licenses and was able to sell the 3 licenses to another franchisee for 20k and take a 30k loss. So I never opened the doors on this business.  How do I treat the 30k loss?
Thanks
Bruce
3 Replies
MichaelMc
New Member

Treatment for Capital loss on Franchise License

Based solely on the facts and circumstances provided in your question, it sounds like the asset was the franchise license itself. The fact that you never opened a store would appear inconsequential.

For purposes of entering your information into TurboTax, treat the license just like you would treat a share of stock or any other investment. Enter a description of the asset, the date you purchased the license, purchase price, date sold, and selling price. Based on the dates, TurboTax will classify your capital loss as long- or short-term. Capital losses are first offset against capital gains. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.

elgregas
Returning Member

Treatment for Capital loss on Franchise License

I would like to confirm this guidance on how to treat the sale of a franchise license still applies for a 2020 tax return.  Thanks. 

MaryK4
Employee Tax Expert

Treatment for Capital loss on Franchise License

Yes, the tax treatment is the same in 2020.

 

If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business are capital expenses and you can deduct them as a capital loss.

 

See Where do I enter a capital gain or loss? - TurboTax

 

@elgregas

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