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Scenario $3$: NOL, Passive Activity Losses, and At$-$Risk Rules

A taxpayer invests $$50,000$ in a film production partnership $($passive activity$).$ Generates a loss of $($$$90,000)$ for the year.

Also has a sole proprietorship business with a net loss of $($$$30,000).$

Prior Year NOL carryforward available: $$0$

Wages: $$80,000$

Interest and Dividend Income: $$1,500$

Itemized Deductions: $$22,000$

Allowable deduction for self$-$employment tax: $$6,200$

Questions:

Analyze how much of the total loss $($$$120,000)$ is potentially deductible under:

Passive Activity Loss rules $($PAL$)$

At$-$Risk Limitations

Calculate the amount of the total loss that can be deducted in the current year.

Calculate AGI, Taxable Income, and Total Tax Liability.