A LT capital losses from selling/liquidating from a hedge fund is passive income?

[Mike300]

Hi,

I sold/liquidated/redeemed out of a hedge fund in 2019 with a LT capital loss listed in the K1.  However, Turbotax is calling it passive income. Is that correct or did I mess up entering answers in the interview?

Thanks,

Mike

[Anonymous]

you have 2 items of capital gain and/or loss,  the capital gain/loss reported on the k-1and a capital gain or loss from liquidating part or all of your holdings in the fund.

if the k-1 reports the LTCG or LTCL on line 9a it is not passive.   if it's reported on line 11 it probably is passive but there should be a supplemental schedule telling you that.  the loss from selling your investment in a fund is generally not passive unless it is in some sort of foreign-based fund such as a passive foreign investment company (PFIC). there would be some information included with the k-1 to inform you of this.   

[Mike300]

Wow. Great Call! Thank you!  In small print on the final page:

"PLEASE NOTE THAT NONE OF THE DISTRIBUTIVE SHARE ITEMS REPORTED ON SCHEDULE K-1 ARE CONSIDERED AS DERIVED FROM A PASSIVE ACTIVITY UNDER TREASURY REGULATION SECTION 1.469-1T(E)(6)"