SJRCPA -

Thank you for responding!

The house that passes from the trust to the beneficiaries would be considered a distribution of principal and not taxed as income, right? only the gain/loss (based on the change in FMV) would have a tax effect?

I may be missing something - I was likening this to an inheritance, outside of a trust, and you're given the FMV on the date of death, that value isn't taxed to you. You pay tax on the gain when it's sold.  I have not before worked with a real property going into a trust and then being distributed. Have been reading IRS docs and trying to figure out how to represent in ProSeries.  I appreciate your thoughts on the taxation of this. 

In ProSeries I see the worksheet, Amounts to Allocate to Schedules K-1, but do not see how to handle the distribution of principal.  I humbly appreciate your guidance.