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the 8582 reporting is correct it is merely used to calculate the amount of passive losses allowed. if you had $150,000 of passive losses and $100,000 of 1231 gain only $100,000 of passive losses would be allowed.  the passive loss flows to schedule E page 2 while the 1231 gain (assuming you don't have other gains or losses reported on 4797) flows to schedule D.

 

 

you get long-term capital gain treatment on the 1231 gain (see capital gain/qualifying dividend worksheet) while the loss goes against other income in figuring your taxes.  note that your ordinary income can push the capital gain into a higher tax rate.

 

say on a joint return wages are $175,100

k-1 ordinary loss -$100,000 1231 gain $100,000

standard deduction making taxable income $150,000

tax on $50,000 (the ordinary portion of taxable income) tax about $5600

tax on $69,200 of capital gain 15% or about $10,400

tax on $30,800  of capital gain $0 

total about $16,000

 

now increase wages to $275,100

tax on $150,000 (the ordinary portion of taxable income) tax about $24,500

tax on $100,000 capital gain 15% or $15,000

total tax of about $39,500

 

 

so that $100,000 extra of ordinary income increased the tax on that portion by $18,900 

but it also pushed an additional $30,800 of capital gain into the 15% bracket or an additional $4,600