Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2012, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows:
Year Income (Loss)
2012....................................($40,000)
2013......................................(30,000)
2014.......................................50,000
How much can Gerald deduct in 2012 and 2013? What is his taxable income from the activity in 2014? Consider the at-risk rules as well as the passive loss rules.