Yes it is a 1231 gain- I agree. IRC Section 1231(a) says "such gains and losses shall be treated as long-term capital gains or long-term capital losses, as the case may be." So, on the 1041 k-1 there is no line for 1231 gain but the preparer of the estate tax return puts in the footnote attached that it is a "passive capital gain". There should be a place to reflect that the gain is passive.
