Losses on sales of rental properties and the included released PALs are ordinary losses and offset ordinary income and also capital gains but the LT capital gains tax is calculated differently and separately from the ordinary rate. If your all of your ordinary income is offset by your rental loss then your capital gains are offset by any leftover loss......it doesn't matter that capital gains and rental sale losses are not "like-kind" and that's even used in the wrong context here. You're also not limited to a loss of $3000/year as that's a capital loss limitation and there's no such limitation for ordinary losses. I also don't know what the other person is talking about when he said gains on other investments are also passive income because they're not....those gains are called "capital gains" and they're not "passive" as in gains from a "passive activity".......just because you don't have to do anything to earn gains on investments doesn't make them "passive" for purposes of the tax law.
