Question

Phil Boxes invested $250,000 in an LLC that produces movies. Phil is not involved in the business at all. The LLC generated a loss of $1,000,000 and issued him a Schedule K-1 loss for $300,000. Phil's 2019 AGI was $125,000. How much of the loss can Phil deduct on his 2019 tax return? Assume he has no other sources of income or loss. Would your answer be different if the LLC was a real estate investment and not a movie production one.

Answer 1

The new Section 181 Deduction under the Tax Cuts and Jobs Act of 2018 (TCJA) likewise creates a 100% deduction for any money invested in a film, television series, or live stage production that is produced in the United States and that qualifies under the original qualification standards of Section 181

As per the above provision 100% loss will be allowed as deduction to Phil

Rental activities are considered "passive" activities, and a loss on a passive activity is not deductible against non-passive income, such as wages. A special rule lets you deduct up to $25,000 of losses from rental real estate in which you actively participate. The $25,000 deduction is phased out when your modified adjusted gross income is from $100,000 to $150,000, resulting in no deduction above $150,000 (for a married filing joint return). See IRS Publication 925 for additional information.

Hence no deduction will be allowed to Phil as no active participation was made in Real estate business.