Yes, based on my assumption of your question, capital gains would still apply. This doesn't eliminate the capital transaction, which the beneficiaries must report if there is no estate return required at the federal or state level. The sale would be reported by each beneficiary and the gain or loss would be based on their cost.
- Percentage of the sale for each beneficiary less their cost, which is the inherited value on the date of death.
You are correct, Pennsylvania (PA) doesn't have an estate tax, only an Inheritance tax. If an estate return is filed in PA, any income would flow to the beneficiaries and get reported on their personal income tax return (PA-40). You would be required to report the sale exactly like the federal return.
If this was sold relatively soon after inheritance then the sales price and cost would result in little to no gain on each of the beneficiaries return. This applies to both federal and Pennsylvania (PA) tax returns.
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