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Mom passed away in July. Even tho she had advanced alzheimer's and was hanging by a thread it was still hard. So I'm just now getting around to wrapping up the trust.

Sorry about your Mom.

Trust has two short term losses. I know about the stepup in basis for gains, is there a stepdown? Or do I have to sell to recognize the loss then pass it through to the heirs?

Yes, there is a step down in basis for losses on assets transfered to heirs. I'm not sure what happens if you sell before transfer. I think the loss would be useable for any final tax return on the estate, but I can't say for sure. I my Mom's case, she would have not income to offset, so it would be lost.

I am assuming the short term loss is better than a LT loss here also, does that make sense too?

It's as least as valuable as a long term. It depends on all the other income types.
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