You will see passive activity losses offset by the sale of the rental property on IRS form 8582 Passive Activity Loss Limitations rather than reported on IRS Schedule E.
The rental property put up for sale in 2022 and sold in 2023 should continue to be reported as a residential rental on IRS Schedule E Supplemental Income and Loss. Expenses incurred while the property was idle would be deductible as residential rental expense.
See IRS Publication 527 Residential Rental Property, page 10 here.
Idle Property
Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent.
Report the sale of the rental property at the screen Did you stop using this asset in 2023? The sale of the residential rental will be reported on IRS form 4797 Sale of Business Property rather than on IRS Schedule E.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
