All investment involves risk, and unfortunately, it is possible for a business in your portfolio to enter permanent default without recovering investor funds. If this is the case, it may be possible to declare the investment as a loss. From a tax perspective, declaring losses can offset capital gains taxes. However, there are many nuances in play, as is the case with any part of the tax code. Thus, this article is written to provide context and information, and should not be seen as formal guidance as we are unable to provide tax or accounting advice. All investors should use their own judgment and seek advice from their personal tax professional before making tax decisions.

The concepts of Capital Losses and Bad Debts may apply to a situation in which a Mainvest portfolio business enters permanent default with no recovery of funds expected. Because most investments on Mainvest involve revenue sharing notes, which are debt instruments, the Bad Debt Deduction may be most applicable. According to the IRS, “A debt becomes worthless when the surrounding facts and circumstances indicate there's no reasonable expectation that the debt will be repaid.”

Because Mainvest is not in a position to make tax decisions on behalf of investors, we can provide information that may be helpful in preparing taxes, but cannot provide firm advice. Thus, Mainvest will provide by February 15th a list of any business in an investor dashboard that has ceased operations or entered permanent default and will make note of any unique situations in which the recuperation of investor funds is still possible (for example, as a result of ongoing bankruptcy proceedings, an outside investigation, or something else). Please note that because Mainvest is not involved in day-to-day business operations of portfolio businesses, it is possible that our team may not have up-to-date information and we encourage investors to reach out to businesses directly for any additional information. If you invested in a business that closed prior to 2023 and do not see an update listed, please refer to your portfolio and Annual Summary for relevant repayment details and/or reach out to the Mainvest support team.

The information available in your dashboard will include:

You can find details in the Repayments section of your dashboard under the "Delinquent" tab. You have the option to download a report or click into individual businesses to see status updates.

Mainvest generally makes its best effort to work with issuers and investors to resolve issues and improve outcomes across the board. However, all investing involves risk, and Mainvest never guarantees returns. In the unfortunate situation in which a business ceases operations, Mainvest makes its best effort to recoup investor funds, ranging from cooperating with and maintaining communications during bankruptcy proceedings to reporting businesses to relevant state and federal agencies if wrongdoing is suspected.

If you are seeking additional information regarding taxes, please see this article. At the end of the day, we encourage investors to make informed tax decisions by consulting a tax professional.