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Utilizing capital losses by selling part of my business

I have a large amount of capital losses, which I will never deplete at $3000 per year.  I have a very profitable business now utilizing 4 contractors to my business.  If I sold 20% of the revenue from my business to someone, could I use that to utilize my capital losses?

Example:

I sell 20% of my business to a third party for $200,000.  The capital gain of $200,000 that I would have from that sale would be offset by my capital losses.  The third party would then get 20% of the distributions from the business.  I assume I will pay more than $200,000 over time to the third party, but it may be worth it for the utilization of the capital losses against income that will otherwise be ordinary income to me.  

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1 Reply
LindaSh
Employee Tax Expert

Utilizing capital losses by selling part of my business

In general, any capital gains you have can be offset by any capital losses you have.  

 

If your business is a sole proprietorship which you decide to sell 20% of, then that sole proprietorship has now become a partnership, provided that the entire business remains intact.  You will need to register with your state and or county as such and obtain an new employer identication number.   If the buyer of the 20% is not going to be a part of the business and separates everything from your business, you will not need to change your business structure.

 

If the business is already a partnership, there is no change in structure needed when you sell 20% of your holdings to another partner or potential partner.  To determine your capital gain, you will need to deduct 20% of your basis prior to sale from the amount of proceeds you receive.  The net amount can then be used to offset any capital losses you have accrued.

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