Have a Tax Question? Ask a Tax Expert
Thank you for using Just Answer.
If the will or the trust specifically allowed you to live in the house rent-free, then the trust as to fill out a 1041 (and CA 541), noting the sale of the house on 1040 Schedule D (CA 540 Schedule D). If the trust closes, the capital gain (along with the sales proceeds) can be allocated to the beneficiaries.
Assuming the house was in your mother's name or the name of the (then revocable) trust, the basis of the house is its FMV (Fair Market Value) as of your mother's death, plus any improvements.