In 2020, Annie Cook and several family members formed Treehouse Rentals, Inc., in Denver, Colorado. Treehouse is a closely held C corporation engaged in the rental real estate business. Treehouse properly classifies its activities as passive. In 2020, 2021, and 2022, the corporation generated net passive losses of \($380,000\) \($145,000\) and

\($194,000\) respectively, all of which were properly suspended.

Effective January 2023, Treehouse elected to be taxed as an S corporation. Also during 2023, Treehouse sold two pieces of rental real estate property. The suspended losses related to these properties were \($63,000)\) and \($112,000\).

Write a memo to Treehouse Rentals explaining the tax treatment of the disposition of the rental properties in 2023.