First, it needs to be an appraisal that reflects the market value on the date he died.
Second, you would distribute the loss regardless. The real question is, is it a deductible loss to the beneficiaries.
Most experts on this board would say that as long as a particular beneficiary did not have any personal use of the property after he died, they can report the sale as investment property and claim a capital loss against any capital gains. Anyone who has personal use of the property can't deduct the loss, because losses on personal property are not deductible.
