if you're going to report the sale as a rental property, since it is now business property the loss is ordinary not capital. the sales price and cost flow to form 4797 and from there to schedule 1 line 4 - not to schedule D
as a personal residence the loss is not deductible.
on schedule E you have to report days rented at fair value which if you never rent it would be 0
whether this reporting would create a red flag in the IRS computers is unknown.
