Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2014, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows:
Year Income (Loss)
2014...........................($40,000)
2015.............................(30,000)
2016..............................50,000
How much can Gerald deduct in 2014 and 2015? What is his taxable income from the activity in 2016? Consider the at-risk rules as well as the passive loss rules.