for trusts and estates the distributions are not what is taxable its the income reported on K-1s. in the final year for an estate all income and unused losses are passed out to the beneficiaries as reported on the K-1's.
say estate received $5,000 in interest income but there was bond premium amortization of $200. the $5,000 was distributed to the beneficiaries. but only $4,800 would appear on K-1's and that's what is taxable
or say on final return a house with an estate value of $100,000 is sold for $110,000. the $110,00 goes out to the beneficiaries but only the $10,000 in capital gains would be taxable to them.
