Should I report proceeds from a sale of inherited real estate?

Yes, you should report the sale. If the property was held as an investment,it appears that you would have a long term loss on the sale. If you used it for personal purposes, then even though you sold at a loss, it is nondeductible. The cash isn't considered at all, because inheritances aren't taxable. 

Your gain or loss on the sale will be calculated by subtracting your cost basis ($7125) in the property from the sales proceeds ($5385).

Your basis in inherited property generally is the Fair Market Value of the property as of the date of death of the decedent. See this link to the IRS discussion of inheritances. You would need TurboTax Premier online to  report this sale.

1. Report this as Investment income, under Stocks, Mutual Funds, Bonds, Other.
2. Say that you did sell investments in 2017, and you did not receive a 1099-B. 
3. Under Choose the type of investment you sold, select Everything Else.
4. On the next screen, you could describe the property as “Inherited Real Estate”, and enter the net proceeds and the date of sale.
5. On the next screen, check that you acquired the property as an inheritance.
6. Enter the date you inherited the property, and the Fair Market Value at the time of the inheritance.
7. The gain or loss on the sale of inherited property will be considered long term.

My mother in law died December 2018. It was in 2019 before the paperwork and lawyers had paperwork completed and wifes name was on the deed. When I report this is the fair market value when she dies in 2018 or in 2019 after it was actually imherited by the wife. How do you determine the fair market value? Is it the appraisal value ?

For the basis of the inherited property report the fair market value on the day she died, 

An appraisal is the best way of determining value. You can also check with a local Realtor or look up similar properties in your area on real estate websites like realtor.com or Zillow.com . Be sure to remember that you're looking for the value on a date in 2018 -- the date your mother-in-law died.

@Jar1178