Sale of inherited home

You may get some sort of answer here, but you will most likely have to deal with the Comptroller's office for this issue.

To clarify (primarily for others), you mentioned your sister and you inherited the house and rented it and then stated, "our adjusted gross income.....". Since you could not file a joint individual income tax return with your sister, to which person do those figures apply (or were they combined)?

House was appraised at $267,000 then. We rented the house for 14 years, and sold it in 2021 for $320,000. Info on 2021 TT is the total depreciation recapture is $59,748. Settlement costs were $18,500., improvements totaled $39,508. Our Fed Form 4797 Part II Line 18 shows -14,286. 

something isn't right and we can not see your return

FMV @ DOD                267,000

improvements               39,508 assuming after inheritance

total cost                      306,508

depreciation                  59,748 assuming after inheritance

adjusted tax basis       246,760

selling price                  320,000

selling expenses            18,500

net selling price           301,500

gain 301,500 -246,760 = 54,740

I don't know how TurboTax came up with a loss based on the number you provided.  so you may have federal issues besides state issues. 

since depreciation exceeds the gain the entire gain for federal purposes would be subject to IRC sec 1250 recapture

i can probably tell you what you may have done incorrectly. in Tutbotax when you dispose of rental property you are supposed to allocate the sale price among the various components - land, building and improvements. Selling costs are allocated based on the sales price allocated to the components. Most likely you allocated $0 to the improvements so the undepreciated cost shows up as a loss on the 4797.