No, passive losses cannot offset capital gains from the sale of stock. Capital gains and dividend income are not considered passive activity income.
No, the fact that you had a Section 1244 stock loss does not change things as your passive activity loss is separate from your Section 1244 stock loss. Under Section 1244, an individual stockholder of a corporation can claim an ordinary (rather than capital) loss of up to $50,000 per year (or $100,000 for on a joint return) from the sale or worthlessness of “Section 1244 stock.” Section 1244 ordinary losses are not first offset against capital gains.
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