The calculation of basis has always been required and sometimes not as clear to some as it should be.
When you take on an investor and sell a portion of your company. You are giving up your rights to those shares and possibly your autonomy to run the business as you had.
But, for that cash unless it is reinvested into the company your basis is diminished, if your basis was barely positive to begin with, any further losses may not be deductible.
Say your initial basis was $1,000. The first year you lost $600 which was deductible for you. SO your basis is now $400. You lose $200 in the second year. You basis is now $200.
Selling any percentage of the business will have significant impact on your basis.
To discuss your basis and its calculations give us a call.