Is all passive income treated the same?

[Sherry T.]

Wondering if losses from passive rental income (I.e. long distance property managed by third party) could offset capital gains from stocks? 

[Michael Plaks]

Quote from @Sherry T.:

Wondering if losses from passive rental income (I.e. long distance property managed by third party) could offset capital gains from stocks? 

Your question was whether all passive income is treated the same. The problem is that we need to be careful with the word "passive" because it has a very specific meaning in the tax law, and it is not intuitive.

For example, losses from rental properties are usually passive but not always, there are some exceptions. Losses from investing in partnerships are usually passive but not always. And so on. Sorry, it really is complicated, and I did not write these laws.

Capital gains from stocks are never passive. They are classified as portfolio income. Because losses from rentals and income from stocks fall into two different buckets, they cannot directly offset each other. 

Notice I said directly. If your overall income, including capital gains, is low enough (under $150k), you may still benefit from rental losses. It will not be a direct offset of capital gains but an offset of your other income.