@bkw1962 wrote:
...I have also read that the capital gain (or loss) is taxable to the recipients - the difference between the fair market value and the selling price.
That is essentially correct; the basis of the property inherited from a decedent is generally the FMV of the property on the date of the decedent's death and that basis would be subtracted from the amount realized (selling price less selling expenses) in order to calculate any gain/loss.
See https://www.irs.gov/publications/p559#en_US_2018_publink100099643
Note that, in this instance, the estate will likely have to file an income tax return (form 1041) to report the sale of the house and it is the estate that will potentially report any capital gain or loss, which will then be passed through to the beneficiaries on Schedules K-1.
See https://www.irs.gov/publications/p559#en_US_2018_publink100099689
