I would keep it as a rental property (even though it may be a "gray area" if that is technically correct).
When you go through the rental section to indicate you sold the property, then go through the "assets" to sell them, it should properly report the sale, including allowing the unused Passive Loss Carryover.
However, on the date you converted it to a rental property, if the Fair Market Value was less than Basis at that time (usually purchase price, plus cost of improvement, minus any prior depreciation), that involves special reporting that TurboTax does not handle well. If that is the case, please post back.
