Question on Passive losses

[JG EA]

On K-1's: Net income to free up losses is "from disposition of assets ..." So the 1231 gain is freeing up passive losses.

Is the reason LT Gains are not also freeing up losses is they are not disposition of the right kind of assets?

[veritas]

Clarify

You have 1231 gains from the activity and other capital gains? Capital gains that pass through on a K-1 is portfolio income and does not free up passive losses.

[Roland Slugg]

Are you referring to LTCGs from things like capital gains dividends, the sale of stocks at a profit, etc? Such gains are classified as "portfolio" gains, not passive activity gains, so those can't be used to offset PALs. Some capital gains can, however, such as the sale of a partnership interest if it was a passive activity. What's relevant is the nature of the activity that gives rise to the gain, so I guess the answer to your question is "sorta yes."

[JG EA]

Thanks for explaining. Just verifying what the program does. It frees up when there are 1231 gains but not (as already mentioned) with L/T gains. It makes sense now that you say it - it is portfolio income and that's why.