DIXIE7175
All of the assets of the Trust, upon the death of the Grantor are "stepped up" to the Fair Market Value at time of death of the Grantor. You did not disclose what was the value disclosed by the Estate on the Form 706 Estate Return, if filed and necessary, but it would have been the Fair Market Value, and not the original cost of $450,000.
You mention that the selling price was $1.6M less $100,000 in costs, and a net proceeds of $1.5M.
As an example, if the FMV for the property at time of death was $1.4M, then the Estate in total would have $100,000 in capital gains. You cited a distribution formula of 50% to step-siblings, and then 16.67% each to your husband and his direct siblings. Thus, the distribution to your husband would be a gross of $250,000 of which in this example [$100,000 total gain] only $16,667 would be reported as capital gain.
All that said, whoever is handling the closing of the Estate, and presumably this is the Personal Representative [old term= Executor], will report all this on any state-level Estate Tax form, if necessary, and on a Federal Form 706, if necessary, and issue to all beneficiaries a statement of bequests distributed. If the Estate files a Form 1041, and it sounds like it should, the beneficiary report will be a Schedule K-1 and will explicitly cite the amount of distributed capital gain.
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