Which Schedule on Form 1041 do I use to report house sale from an estate trust?

You'll need to report the sale on Schedule D of Form 1041 (Capital Gains and Losses). This is where you report the sale of capital assets, including real estate held in the trust. Make sure you have the original cost basis of the property (what your aunt paid for it plus any capital improvements) and the selling price. The difference between these amounts, minus selling expenses, is the capital gain or loss that needs to be reported. The property likely received a stepped-up basis to the fair market value at the date of death, which may significantly reduce any taxable gain. Also, you'll need to complete Form 8949 (Sales and Other Dispositions of Capital Assets) to provide the details of the sale before transferring the total to Schedule D. The 1041 instructions can be confusing, but these are the primary forms you'll need for the property sale.

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I had a similar Form 1041 situation with my brother's estate last year. After weeks of trying to reach the IRS for guidance on handling the sale of his rental property in the trust, I couldn't get through to anyone. Every day I'd waste hours on hold and eventually get disconnected. Finally, I found Claimyr (https://claimyr.com) and their service actually got me connected to a real IRS agent in under 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly which schedule to use on Form 1041 (confirmed it was Schedule D) and explained how to handle the special circumstances with my brother's property that had depreciation recapture issues. I was skeptical that anyone could actually get through to the IRS that quickly, but it worked exactly as promised. Complete lifesaver when you have specific questions about trust and estate returns that the general guidance doesn't cover.

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One thing nobody's mentioned yet - if the sale proceeds were already distributed to the beneficiaries, you may need to issue K-1s showing each beneficiary's portion of the gain (or loss). Make sure you're tracking who got what percentage of the distribution to properly allocate on the K-1s. Also, check if the trust is a simple or complex trust as this affects how the income is reported and distributed. For a simple trust that requires all income to be distributed, the gain would flow through to the beneficiaries. For a complex trust, the trust itself might pay tax on some of the gain.

Has anyone dealt with a situation where the house significantly appreciated between death and sale? My situation is similar but we didn't sell right away and now there's a huge gain from the stepped-up basis to sale price.

I'm dealing with a very similar situation right now with my grandmother's estate. One additional thing to consider that hasn't been mentioned yet - if the property was used as a rental before your aunt passed, you may also need to deal with depreciation recapture on Schedule D. This gets reported as ordinary income rather than capital gains and can significantly impact the tax liability. Also, make sure you get a proper appraisal of the property as of the date of death to establish the stepped-up basis. The IRS may question the valuation later, especially with a $425,000 property, so having professional documentation is crucial. I learned this the hard way when they asked for supporting documentation during my grandmother's estate audit. For the K-1 distributions to 20 beneficiaries, consider whether any of them are minors or have special circumstances that might affect how they report their share of the gain. This can get complex quickly with that many people involved.