Short summary - I purchased the business for $150k and have never made a dollar. If I close it down I can assume a capital loss of $150k, correct? If I sold it for basically nothing to the employee, can I take the same loss?
what type of entity? other than a C-corporation you should have been able to deduct your losses each year up to a total of $150k.
in a C-Corporation the liabilities are that of the corporation not yours personally (unless you gave personal guarantees which is another issue completely) in this case you close it down you have a $150K capital loss. if you sell it to an employee for $1 you have a capital loss of $149,999
in other types of entities such as a sole proprietorship or S Corp, you should have been deducting your annual losses (subject to any passive loss limitations. then either selling or closing down would free up any suspended passive losses)
you need to consult a tax pro to make sure you have deducted any allowed losses and determine your tax basis and also the nature of any allowed loss. only $3,000 of capital loss can be used in any year to offset ordinary income. a lot depends on what type of tax entity this business is. they'll be able to tell you what the tax consequences of closing or selling the business would be. once that is done you should consult a lawyer to draw up or review legal documents concerning the sale. certain laws, other than tax laws, may need to be complied with like bulk sale law. failure to dot the i's and cross the t's and you can find yourself on the hook for a lot of money down the road.
