1) the basis of the home would be the FMV on the DOD of last surviving spouse plus capital improvements made to the property by the trustees between the DOD and the date of the sale on 4/1/15 -- correct?
That is correct.
2) If the basis is what I think it is above, considering the sale price of the property and the related selling expenses a capital loss will result.
Is the capital loss deductible or is it considered a loss on personal use property and not deductible?
That depends on the use of the house.
Personal use will be loss that is not deductible.
If there was other than personal use (such as rental) then the loss may be deductible. Since it was formally a residence there would generally have to be evidence of intent to convert or use the property into investment or business property.
So, this is a question of facts and circumstances whether use changed or not.
"Sale of decedent's residence. If the estate is the legal owner of a decedent's residence and the personal representative sells it in the course of administration
, the tax
treatment of gain or loss depends on how the estate holds or uses the former residence. For example, if, as the personal representative, you intend to realize the value of the house through sale, the residence is a capital asset
held for investment and gain or loss is capital gain
or loss (which may be deductible). This is the case even though it was the decedent's personal residence and even if you did not rent it out. If, however, the house is not held for business or investment use (for example, if you intend to permit a beneficiary
to live in the residence rent-free and then distribute it to the beneficiary to live in), and you later decide to sell the residence without first converting it to business or investment use, any gain is capital gain, but a loss is not deductible."
Although the publication is in regard to an estate, the principle does still apply to the trust.
Please ask if you need more information or discussion.