I'm just guessing here, as I can recall this error or one very similar to it many, many years ago. If my rusty memory serves me correctly, the reason you're getting this error is because your recapture depreciation doesn't "add up".
You probably already know this, but I'm stating it for clarity.
When you sell a rental property, you are required to recapture all prior depreciation taken on all assets and pay taxes on that recaptured depreciation. If you sold the property at a gain, then you have to spread your structure sales price across all assets listed in the "Sale of Assets/Disposition" section. If the property was sold at a gain, then you need to show a gain on every asset listed. If sold at a loss, then you need to show a loss on all assets listed.
To show a gain on all assets listed, your sales price on each asset needs to be "at least" $1 over the original cost basis of that asset.
When sold at a loss, the sales price of each asset needs to be "at least" $1 less than the original cost basis minus the depreciation taken on that asset.
When you show a gain on some assets and loss on others, one of two things happens.
1) recaptured depreciation is incorrectly taxed at the capital gains tax rate, instead of the ordinary income tax rate.
2) You get errors such as the one you are experiencing.
I suspect you did report a gain on some assets and a loss on others, because you specifically get the error of "Assets with disposition losses cannot be linked to the Home Sale Worksheet".
In other words, you have "confused" the program. 🙂
One new piece of information for myself on this, is that you qualify for the "lived in 2 of last 5" capital gains tax exclusion. So maybe that's why you get the error instead of having the recaptured depreciation incorrectly included as part of the capital gains.
