Partnership Interest Sale Capital Gain-Offset with Passive Loss?

Question

One of my investments went full cycle, but the sponsor sold the partnership interest in the properties instead of the property itself. As a result, the gain is reported on Box 9a (Net long-term capital gain) instead of 10 (Net section 1231 gain).
The question is whether the capital gain can be offset by passive losses. The Sponsor company is stating that investors should provide this reference to their accountant -
Passive activities are discussed in Internal Revenue Code Section 469 and its accompanying regulations. Treasury Regulation §1.469-2T specifically addresses the treatment of gain from the disposition of a passive activity.

Anyone have experience with this topic?

Account Closed · Answer

What are the passive losses from? This partnership that was sold or separate activities? Like Ashish said the PALs related to the partnerships that were completely disposed of will be released in the year of disposition.

Account Closed · Answer

This is a complicated transaction. What do you own? A partnership that owned a partnership who's interest was sold, so the partnership you own still remains?

James Sun · Answer

My partnership interests were transferred to a master holdco (part of a larger recap) and the buyer purchased all partnership interests of this master holdco. This was done to prevent a property tax reassessment for the buyer.

James Sun · Answer

There would be no doubt if the gain was reported in box 10 (Net section 1231 gain). My K1 is different due to reasons above and the gain is reported in 9a.

Ashish Acharya · Answer

capital gain from the full disposition of the asset should free up the PALs. But other details will be needed to conclude this.

Partnership Interest Sale Capital Gain-Offset with Passive Loss?

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