.: Quote from @Matthew Hamilton: When it comes to how income and losses show up on your tax return, everything generally falls into one of two categories: passive or non-passive. • Passive losses can only offset passive income.• Non-passive losses can offset both non-passive and passive income.W-2 income is non-passive, and in most cases, capital gains from selling investments (brokerage accounts, crypto, etc.) are also non-passive.Real estate losses, by default, are considered passive.There are two main ways to convert those real estate losses into non-passive losses (which is what you’d need to offset W-2 income):1.

Passive Investment, Active Investment, Businesses 1.

Does my wife's REP status allow me to deduct passive losses from the 2 rentals properties against our active income, or does the fact that she does not materially participate in managing the rentals prevent us from doing that?

When filing jointly, if one spouse qualifies as a Real Estate Professional and materially participates, the rental activity as a whole can be treated as non-passive for the joint return.

This is probably the best scenario of all because $250 K gain exclusion on your primary isn't very much, really. 

I have large passive activity losses on my tax return so I would guess that wipe out some of the gain.

My cpa is estimating around 50k in capital gains.

Note those are more passive investments than residential RE.  

To make the losses non passive so they can offset your business sale gain, you’ll need to materially participate in the STR and ensure the average stay is seven days or less.

Before buying rental properties, I did try private lending and it was more passive for me without needing to get into the details of the investment and settle for a monthly return or net profit at the end of the project, which is the route I may return to.