Your basic understanding is correct. If the house passed into the estate and was sold there, file a Form 1041 estate and trust income tax return.
Income from the estate will be passed to your via a Schedule K-1.
Your rental appears to be a not for profit activity if you intentionally charged less than your expenses. In that case, you would not be able to claim a loss but can claim expenses up to income to zero out. It would depend on the facts and circumstances of your situation..
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