Yes, let's break these questions down individually.
- Since the sale of the home resulted in a net loss, this should be reported on Form 1041. Losses from the sale of capital assets, like real estate, can generally be passed through to beneficiaries on their Schedule K-1 if this is the final return for the estate.
- Capital Gains Taxation: You're correct that capital gains are typically taxed at the estate level unless the estate explicitly distributes the gains to beneficiaries. However, in your case, there's no gain—only a loss—so there'd be no capital gains tax to worry about.
- The proceeds aren't taxable income and don't need to be reported on the return.
- There should be some income passed because of income and dividends reported. Some of this may be removed after removing the proceeds.
Please reach out if you have additional questions.
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