1231 gain from K-1 somehow reducing top line income

[Harruin]

I'm part of a LLC (P) that owned two multifamily properties for a couple of years. There were the typical passive losses and this was reported through K-1's. One of the properties was sold in 2022 resulting in a 1231 gain of $57,845 and 1250 recapture of $4,175, as well as rental income of $8,000. When I enter this information, the $57,845 is somehow showing a negative amount for other income, and reducing my capital losses for the year (stock losses).

I've went through the questions multiple times and I'm just not seeing how this is possible. On the actual tax reform, it's showing under schedule 1 no gains under line 4 (referencing form 4797), but a loss of $57,845 on line 5. Under Schedule E, it's letting me take all of the passive losses I've accumulated over the years to offset current income and the sale. Any ideas?

[Mike9241]

1231 gain is capital gain so it will reduce capital loss carryover. it flows first to 4797 and from there the net (line 9a of the form) flows to line 11 of schedule d. if there were suspended losses upon disposition they are freed up so you get a deduction for them

in effect the $57K 1231 gain is offset by the allowance of $57K of passive losses. look at form 8582

[Harruin]

Okay, that makes sense now that I'm thinking about it more. The capital losses threw me off, but if they weren't there I would be showing both the gain, and the prior passive losses would be offsetting it.

[Tax2019Pay]

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