Business & farm

@daewoorocks Ok. Thanks for the update.

Learning about passive losses is always a surprise for people.

So you are right that absent other passive gains you will not recoup your box 1 suspended passive losses until you sell or dispose of your entire interest. (See below for a detail example from IRS Pub 925).

[There is an exception if a passive activity can be split into two activities and one is fully disposed of. Maybe for example if there were two rental properties, don't know. Also it is possible to fully dispose of something even though you get ongoing payments for it over more than one year--an installment sale. Then each year's payments received are allocated some to interest, some to gain or loss. But you no longer have a profit or loss interest in the asset you sold].

It seems that box 8/9 (and probably other boxes re: interest/dividends) are for income from investments in the LLC's portfolio and that income/loss is by definition not passive b/c it does not come from the business of the LLC. I don't know much about this so I can't make certain statements. But it seems like portfolio losses (or income) will just hit your Schedule D (or Schedule B if dividends/interest) in the year you get them. The passive losses are all about income/loss generated by the business the LLC is in. See below.

IRS Pub 925

https://www.irs.gov/publications/p925#en_US_2019_publink1000104597

Passive activity income includes all income from passive activities and generally includes gain from disposition of an interest in a passive activity or property used in a passive activity.

Passive activity income doesn’t include the following items.

...

Portfolio income. This includes interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business. It includes gain or loss from the disposition of property that produces these types of income or that’s held for investment. The exclusion for portfolio income doesn’t apply to self-charged interest treated as passive activity income. For more information on self-charged interest, see Self-charged interest , earlier.

Another example from IRS Pub 925, https://www.irs.gov/publications/p925#en_US_2019_publink1000104597

Dispositions

Any passive activity losses (but not credits) that haven’t been allowed (including current year losses) are generally allowed in full in the tax year you dispose of your entire interest in the passive (or former passive) activity. However, for the losses to be allowed, you must dispose of your entire interest in the activity in a transaction in which all realized gain or loss is recognized. Also, the person acquiring the interest from you must not be related to you.

If you have a capital loss on the disposition of an interest in a passive activity, the loss may be limited. For individuals, your capital loss deduction is limited to the amount of your capital gains plus the lower of $3,000 ($1,500 in the case of a married individual filing a separate return) or the excess of your capital losses over capital gains. See Pub. 544 for more information.