First the mortgage payoff is immaterial to an income tax return ... what is going to be reported is the sale itself which will include the stepped up basis as of the date of death + the cost of sale... subtract that total from the sales price and you will probably have a loss to pass to the beneficiaries. This return may be way too complex for you to attempt on your own if they are various income items that need proration. Distribution of the assets are not reported on the income tax return for the trust. Seek professional guidance ... the cost of help should be paid by the trust.
As to the other assets ... they are not reported on an income tax return so they have nothing to do with the usage of the loss UNLESS they sell what they inherited for a gain ( assets like a car or stocks).
