It is no longer red after my fix. And I think perhaps your method could get it there as well. But my solution has the benefit of making M-1 line 3 correct, whereas before it showed the sum of deductible business activity GPs plus rental activity GPs but excluded capitalized business GPs.
I am likely getting into areas of accounting that are (way) over my pay grade, but I felt like an M-1 adjustment should reflect a disparity between books and return, and there isn't really a disparity. But perhaps you are correct and the IRS would rather see all GPs not deducted somewhere in M-1 (for both business and rental activity).
