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What is the practical difference of entering in Capital Gains from Line 8 or line 9 as Passive or not? There are two options, but what difference does it make?
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If you enter them as passive, the passive activity limits are automatically applied by Lacerte. I get some oddball fund-of-funds K-1s that report a portion of the capital gains and losses as passive, and I treat them as such. Unless you have reason to think a particular item of capital gain or loss is passive, it's probably portfolio (non-passive), even if the K-1 comes from an activity that the taxpayer isn't active in.
I'm trying to come up with a scenario where an item would properly be both passive and capital (rather than 1231) - the sale of cropshared bare land, maybe? Do I have my doubts about the presentation of those oddball K-1s? Yep. Am I leaning hard on the K-1 preparer being a non-signing preparer of my client's return, such that the liability for that presentation lands on them not me? Heck yes.
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