I am preparing a trust return. I received a 1099-S for the sale. I have been claiming the rental income, depreciation, and expenses. When I declared it sold this year it entered the sale on Part II of the 4797 because the date of death was within one year. My understanding is that it should be considered long term because it was inherited, so I backdated the acquisition to get it in Part I of the 4797. That seems to work out on the 4797, but the loss flows to the 1041 as an ordinary loss, not a capital loss. It then offsets all the ordinary income first and then offsets capital gain. I believe it should offset capital gain, then offset 3000 of ordinary income and carry over the rest.
