I closed on a sale of property on 05/07/2021, and received 1099-S showing gross proceeds. We actually lost money on this deal. How does the IRS treat this?

[ThomasM125]

If the property was held for investment, in other words there was minimal personal use of the property, the sale would be treated as a capital loss. As such, it would be combined with other capital gains or losses you might have, and if it results in a net loss, it is subject to a maximum $3,000 deduction per year.

If you used the property for personal use, as a vacation home for instance, the loss would not be deductible.

[Mike9241]

what type of property? a personal residence that was never rented (thus no depreciation) - no deduction but you still have to report it. In step-by-step mode Turbotax will adjust the info so no loss is allowed.

if it's depreciable property or real property used in a trade or business it gets reported through form 4797. the loss is allowed 

if it's investment property it gets reported on form 8949 (which flows to Schedule D) and is a capital loss.