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Capital Gains "passive"?

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    Capital Gains "passive"?

    I am completing a 1040 for a client who is the managing member of a 1065 qualified investment partnership (NH law). I complete a 1065 as usual for federal purposes. The partnership owns stocks, bonds, and other investment vehicles that are taxed as partnerships. Here's my question - using CCH prosystem fx software, when I enter the K-1 activity on his 1040, there is a checkbox that is just listed as "Capital gains passive". My experience calling CCH shows that I HAVE to KNOW the tax law, or the result I want in order for them to direct me, so I haven't called them yet to ask what this checkbox is for.
    So here's my question - when would capital gains ever be passive, and, if they are, what is the tax result? Capital gains are supposed to flow through to the 8949 and/or schedule D, and I just can't see what this checkbox is getting at.
    Any ideas?

    There are lots of ways to help in ProSystem fx. For instance, if you are in the box in question and click the ? along your bar, it says:
    Capital Gains Passive
    Make an entry if either short-term or long-term capital gains or losses are passive.
    If entered, net capital gains or losses are considered passive and not carried to Form 4952 as investment income. If not entered, net capital gains or losses are considered nonpassive.

    Were you trying to have investment income to use up investment interest? Or, not?

    I would use CCH's KnowledgeBase. Or, do you have TaxPrepPartner or AnswerConnect?

    I'm sorry I don't know what answer you need for this client, but I can point you to the above research options. And, someone here will be able to explain the tax background of choosing passive or not.


      Here is the most common example: A person has some rental properties (passive income). He sells one of the properties at a gain. That would be a passive capital gain.

      If the taxpayer had suspended passive losses from other rental properties that were being carried over, that passive gain could offset some of those suspended losses.