Paying self-employment tax has nothing to do if it is passive or non-passive.
You mentioned above that you DO "Materially Participate". Did you indicate that in the software? If so, that would make it non-passive. If you mistakenly told the program you do NOT Materially Participate, you are telling the program it is passive.
You didn't say where the passive losses were coming from, but (a) if the passive activity was disposed the carryover losses would be allowable, and (b) in certain circumstances passive losses from real estate rentals are allowable.
