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Yes, should report the sale of this inherited property on your tax return even though it generates a loss. What is important however is you will need to report this inheritance on Form 3520.  In accordance with the instructions for form 3520, you file if you received more than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests. It also mentions that if you receive a distribution from a foreign trust (any amount), then this distribution needs to be reported in accordance with step 3 of the instructions.

The 3520 is an informational form sent to the IRS that does not generate any tax liability on your return. Also form 3520 will need to be printed and mailed with your tax return as Turbo Tax does not support this form. Here is a download copy of Form 3520 to submit and mail with your return.

Now report your inherited property as an investment property.

1. Go to federal>wages and income>investment income>stocks mutual funds etc
2. Say not to 1099B
3. Enter the sale. Description.  Inherited House
4. Date sold
5. Date acquired.  Date of inheritance.
6. Sales proceeds. Amount received for the sale.
7. Cost or other basis. This is the FMV of the house at the date of the decedent's death.  
8. indicate this is long-term
9. ignore the screens until you arrive at a screen that asks if any of these less common adjustments apply
10. Here you will check that the sales proceeds did not deduct all fees or selling expenses if this is true.  If the sale proceed amount already accounted for the fees and selling expenses, you will not check this box.
11. Also there is a check box you need to check if you sold this property to a related person. if not, leave this unchecked.
12. When everything is said and done and reported correctly, you should be able to claim the capital loss on your Schedule D and 8949, provided you did not sell this to a related person. 

If there is a capital loss of more than $3000, you will be able to claim a $3k capital loss  this year and carryover the remainder indefinitely until you use up the remainder.

@mdd108