Thanks and good point, I did gloss over that PAL can only be offset by passive income while NOLs can offset non business income. If someone had a bunch of PAL and wanted to generate passive income to offset, I guess the likely way is to invest in a small business partnership (that generates ordinary business income) you're not actively involved in or to non professionally invest in a real estate partnership? Investing in hedge funds and debt funds seems to mostly generate capital gains, interest, and dividends so those wouldn't be good choices from what I've seen. The other option is to completely dispose of the partnership source of the PAL which releases the full amount of PAL into ordinary income from what I understand, but then if the PAL is really large and greater than your other income that year, then you generate a NOL and we're back to the problems of large NOLs.
Speaking of which, one can elect not to use an NOL in a given year right? If you elect not to use it, do you just carryover the full amount to the next year or is it reduced by the calculations in the NOL worksheet every year you don't use it? Also, what was the idea behind that complicated NOL worksheet in the first place. Why not just allow people to use their full NOLs to offset future income?
