Why can't a Passive Loss carry over to off set LTCG from sale of a Passive investment

[Buddy Holmes]

Help please in learning how passive losses can offset Cap Gains.

I watched Brandon Hall's great #45 Daily Smart Tax video but my Turbo Tax seems to have a different opinion.

Form 8582 calculates Passive loss Limitations.

I have rental homes with PM but active participation. Their net loss was $11,452

I have DSTs and LP with total passive participation. Their net loss was $29,319

One of my Passive DST's was sold and I did a 1031 exchange but took $13,000 out.

I thought the $13000 LTCG would be off set by the passive loss I had carried forward. 

Turbo Tax separated the two and both had net losses.

My AGI was low enough to allow up to $21,805 in deduction, but…

The rental homes loss was less than the passive-passive loss so it was used to compare to the $21805 to reduce income by the lower value of $11,454 which was placed on the 1040

Part III goes on to calculate “Total Losses Allowed”

It sums the net income of the active and passive, passive activities on Line 10

Then Line 10 adds this to Line 9 which was the overall net of only the smaller active passive loss. It call this the “TOTAL losses Allowed” and to see instructions on how to report on your 1040? Turbo Tax evidently didn’t understand the instructions either because I can not find where it is used. Instructions say “use parts IV through IX and related instructions…” First I don’t have a Part IX on my Form 8582

Looks like the $29,319 will be carried over to next year. But why can't I off set a $13,000 LTCG which was taken out of the 1031 exchange of a passive investment?

Cheers,

Buddy

[Carlos Ptriawan]

that's turbotax problem.