Why are capital gains rolling into net income for form 8582 Part I - 1a

[sparcel]

After updating my "Property Assets" in Turbotax to indicate an asset acquired many years ago has been sold, the gain appears in form 8582 (Part I -1a) as net income.  (It also appears as capital gains in Sched D and 4797 as it should.).  Why are these long term capital gains appearing as income in 8582?  I thought this was only for passive income - which does not include capital gains.

[KrisD15]

You may have selected that you do not materially participate in the business or your investments in the business were not at risk. 

When you sell a business asset, the increase in value is Capital Gain, however the income attributed to depreciation recapture is ordinary income. 

So if you have an asset that you paid 50,000 for, depreciated 30,000, and sold for 60,000, you would have 30,000 ordinary income and 10,000 Capital gain.  

[sparcel]

To my understanding, the recovery of depreciated value on rental real estate is, because of section 1250, treated as capital gains (though there can sometimes be a somewhat increased rate for the cap gains).  As for material participation, I specified that I actively participate, but that I am not a real estate professional.

I should add that I had a CPA do these taxes because it was an unusual tax year, and he did not come to the same conclusion as Turbotax.  He had no net income from the sale shown on 8582 Part I - 1a (nor 3a).   He did have an amount in line 19 of schedule D.

My purpose in doing this work is that even though the CPA did these taxes already, I normally use Turbotax and not a tax person, and I want to get all of this into Turbotax so it will flow properly into my following years taxes.  Also, you never know, it could be that the CPA made a mistake.  (I do have carryover real estate partnership losses for another property that Turbotax is showing are offsetting the ordinary income gain, so if Turbotax is correct it might be good - so getting this right could be important.).  Also, if this is a bug in Turbotax then I assume it is important for you folks to get this figured out.

[sparcel]

I should further add that the amount shown in 1a as income is much larger than the amount that could represent only the depreciation recovery.  Instead it is reflecting all or nearly all of the entire net proceeds of the sale.

[ThomasM125]

The gain would retain the same passive or non-passive character as the underlying business to which the asset was associated. Since rental activities by a non-dealer are passive, the sale of an asset used in the rental would also be passive. That is why it shows on form 8582, Passive Activity Loss Limitations.

Disposing of passive activities