How does buying someone else's loses help a company?

Question

I was reading Rich Dad/Poor Dad and he talks about when his first company went bankrupt and his investors wanted to buy his loses from him?

What does that mean and how does that benefit the people who wanted to but them? Please be specific as possible since I am completely dumbfounded on this concept.

Answer 1

Companies are able to use losses to reduce taxes in future years.  Let's say Company A lost $1,000,000 in 2006 and made $1,000,000 in 2007.  Company A would carry forward the 2006 loss, offsetting the 2007 profit and pay no taxes (note this is a simplified version of the tax rule).

By buying a company's losses, the company with the loss gets an infusion of capital while the company doing the buying, gets the loss to put on it's books to carry forward and offset any profits they may have.  By having a lower level of profits, company b saves money by not paying taxes.