"Net long-term capital gain (loss)" and "Passive long-term capital gain (loss)" on K-1 input screen?

[puravidapto]

I have a K-1 (Form 1065) of a partnership "AMINO CAPITAL III, LP", which is a venture capital firm. My client is one of the investors. On the K-1, there is "Net long-term capital gain (loss)" item of $300.

The K-1 input screen has "Net long-term capital gain (loss)" and "Passive long-term capital gain (loss)" as shown below:

If I put the amount in "Net long-term capital gain (loss)", it is treated as a capital gain alone.

If I put the amount in "Passive long-term capital gain (loss)" as shown in the image, in addition to capital gain, the same amount of Schedule E rental loss will be allowed. i.e. it has three effects:

(1) Capital gain

(2) Schedule E loss allowed on form 1040

(3) Schedule E loss reduction

Questions are:

(a) what is the difference between "Net long-term capital gain (loss)" and "Passive long-term capital gain (loss)"?

(b) Should I put the amount in "Passive long-term capital gain (loss)" or "Net long-term capital gain (loss)"?

(c) Why does "Passive long-term capital gain (loss)" have this complicated three folds treatment?

[PhoebeRoberts · Accepted solution]

1) One is passive, one is portfolio.

2) If the footnotes to the K-1 indicate it's passive, I treat it as such. Otherwise, I assume it's portfolio.

3) That's how passive income (and losses) work.

[puravidapto]

Besides rental property, are there other examples as passive capital gains?

Suppose there are not rental loss carryover, one rental has 3000 loss, another rental has a capital gain 1000 (suppose no rental loss on second rental for simplicity), what needs to be reported are:

capital gain 1000
rental loss allowed 1000
remaining rental loss 2000 carryover (suppose income is more than 150k)

Is this right? Thanks. 

[PhoebeRoberts]

Personally, I've never prepared an entity return where I took the position that there was passive capital gain other than on the sale of rental real estate. But I can reasonably rely on the footnotes of the K-1 someone else prepared, and that's good enough for me!

I'm not gonna prepare a hypothetical Form 8582 using nothing but words in a chat box. That's what Form 8582 is for!