Question:
Five years ago, Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2004, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows:
Year Income (Loss)
2004 $(40,000)
2005 $(30,000)
2006 $50,000
How much can Gerald deduct in 2004 and 2005? What is his taxable income from the activity in 2006? Consider the at-risk rules as well as the passive loss rules.