Q. What IRS form is used for estate sale of property?
There is no form for an "estate sale". The individual items sold will be reported on Schedule D, if they even need to be reported.
The estate sale items (items belonging to Sara and Daniel [e.g., camper, boat, furniture, and fishing and hunting equipment]) will only be reported if there is a gain (highly unlikely). The cost basis of inherited items is the Fair Market Value (FMV) on the date of death, which is usually what you can get for them. So, there is seldom a gain on the sale of inherited personal property. You are not allowed to deduct a loss on the sale of personal property.
Q. So do I use Schedule D for the sale of the investment lot? If so, what is the reasoning?
A. Yes. The reason is: you sold a capital asset. The $9000 proceeds is not the relevant number. The cost basis in the lot, is the FMV on the date of death, most likely the $80,000 it sold for (not the $85,000 Daniel paid for it). So, there is little or no gain or lost. Since this is investment property, not personal property, an actual capital loss would be deductible. You should report the sale, even if there was no gain or loss, particularly if a form 1099-S was issued.
The statement "Logan estimates that the property sold originally cost at least twice the $9,000" conflicts with the statement "The lot in St. Louis was purchased on May 2, 2016, for $85,000." But, it's not relevant; as the cost basis is FMV, not what Daniel paid for it.
The cost basis in the inherited securities is also the FMV on the date of death, apparently $60,000 ("Logan inherited securities worth $60,000").
