A number of years ago, Lee acquired a 20% interest in the Blue-Sky Partnership for $60,000. The partnership was profitable through 2016, and Lee's amount at risk in the partnership interest was $120,000 at the beginning of 2017.
Blue-Sky incurred a loss of $400,000 in 2017 and reported income of $200,000 in 2018. Assuming that Lee is not a material participant, how much of his loss from Blue-Sky Partnership is deductible in 2017 and 2018? Consider the at-risk and passive activity loss rules, and assume that Lee owns no other investments?