I have a question regarding capital losses reported via K-1 from a passive investment.

Last year's return includes passive losses from two separate investments (Investment 1 and Investment 2), totaling $15000. These losses were originally reported in Box 2 of their respective K-1s.

For the current tax year, a new passive investment (Investment 3) reported a $2,500 capital gain in Box 8. Proconnect applied some of the previously suspended losses from the first two investments—these appeared on Schedule E, line 28, and flowed through to Schedule 1, line 5, ultimately offsetting the $2,500 gain on the 1040.

The $2,500 gain is also reported on Schedule D, line 5, which ended up reducing an existing short-term capital loss carryforward. Is this the correct behavior? If capital gains from a passive activity cause suspended losses to be released, should those gains still be deducted from an existing capital loss carryover?