My parents have recently passed away. They were U.S. citizens, but they had a house in Iran which was vacant for many years (no income). We are trying to sell the house and transfer the proceeds to the U.S. My questions are:
1- How do I arrange for the transfer of funds considering that U.S banks do not deal with banks in Iran?
2- How do I establish that the money (less than $1 mil) is from inheritance and thus not subject to taxes.

Thanks for any advice.

You will report sale on schedule D (Form 1040).
Your cost basis is the fair market value of the house at the date of death.

You will probably need to transfer the money to an intermediary country like Turkey, then transfer the funds to the U.S.

Further, you will need documentation from Iran to show the money is inherited as a six-figure funds transfer will elicit notice from the IRS.