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Hi All,
This seems to good be true, so I am trying to disprove this or poke holes.
Client has a passive 1231 gain form a LLC K-1 (Box 10), about 600k.
The passive gain frees up about 600k of passive losses from the same LLC. Makes sense so far.
the 600k 1231 gain goes to 4797 and then to Schedule D. Makes sense so far
On the Schedule D the 600k 1231 gain is being offset by ~400k of capital losses carry overs.
Net Result is a Schedule E page 2 loss of 600k (passive loss allowed with passive income) and only 200k of 1231 gains, this creates a Net Operating Loss and no tax. Everything seems to line up, but it just feels like we are taking 2 kinds of losses (passive loss carryovers and capital loss carryovers) against the same income. Any thoughts?
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Provided the 1231 gain is passive, everything sounds correct.
The more I know the more I don’t know.
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Thank you! I was having trouble finding confirmation that both losses could be used in checking form instructions.
