In the rental section, when going through the asset say YES when you get to the "Special Handling" screen. Then:
Option #1: Report the sale in the "Sale of Business Property" section. Adjust your Basis to result in $0 gain/loss (actually, if I remember correctly, that section of the program has a problem with that; if so, adjust so it shows a $1 gain).
Option #2: Report the sale as a personal home sale. It will report it on the wrong form (8949 rather than 4797), but it will properly limit it to a $0 loss.
Option #3: Go ahead and report the sale in the rental section (say "no" to the Special Handling question) and show the loss. Then to the "Sale of Business Property" section and report a sale that shows an equal amount of gain. You can call it something like "Offset for non-allowable loss". The net result will be $0 gain/loss.
Personally, I would go with option #1.
