Unfortunately, a Passive Loss Carryover from rental activities cannot be used to offset a Capital Gain from the sale of rental property. The tax rates on the two items are different.
However, you may generally deduct in full any previously disallowed passive activity loss in the year you dispose of your entire interest in the rental activity. If you have entered the loss carryover into the Rental Properties of TurboTax, the program will handle the deduction for you when you report the sale of the property.
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