1. Is this a true assumption?
Yes. Here's how it works with the sale of rental property. (gain or loss) There's two ways to figure this, depending on if you sold at a gain or or loss.
If sold at a gain, your cost basis is set by subtracting all depreciation from what you paid for the property to get your adjusted cost basis. Then if your sale price exceeds that adjusted cost basis you have a taxable gain.
If sold at a loss, all prior depreciation is added to your sales price. If the total is more than what you paid for the property, that results in a gain then it's taxed as such. If it's a loss, then your losses are deductible from "other" ordinary income. In many situations your allowed loss against other ordinary income may be limited to a maxiumu of $3000 a year until all the losses are used up.
2. If I were tell sell equity investments for capital gains in the same year, would the PAL first apply to capital gains (lower tax rate) and then to ordinary income? In other words, should I wait to sell stocks at a gain to ensure the PAL offset is to ordinary income?
I'm honestly not 100% sure on this, as I don't know for a fact that gains on other investments (which are also passive income) are considered "other ordinary income" for your specific situation. I also don't think losses on the sale of rental property can be used to offset gains on other investment income, since your equity investment income is not "like-kind" to the rental property investment that you sold.
