You may want to see a profession tax preparer to get this straightened out.
A capital loss on personal use property is not deductible. You say you lived there while you fixed it up. That may or may not be "personal use". If you stayed there solely for the purpose of repairing the home and you still maintained your primary residence some where else, then that would not be personal use.
Although you each had an $8000 loss, you may only deduct $3000 against ordinary income. So, if you are in the 15% tax bracket, you can expect to save about $450 in taxes or get a $450 refund. If you have other capital gains, you may deduct the loss against the gains. Otherwise, the other $5000 gets carried to next year's tax return.
If you do amend, you do not prepare a Schedule K-1 or form 1041. Those are for use by the estate administrator, only if the estate needs to file a tax return. You can report the capital loss directly on form 8949 and Schedule D (Enter in TurboTax as the sale of real estate investment property).
