You are correct -- the money you inherited is not taxable and you don't have to enter the K-1 into your return. However, in your case the K-1 is reporting a loss on lines 3 and 5. This can be deducted from your taxable income, so it is to your benefit to enter the information in your return. If you itemize deductions, you can also include the real estate taxes paid by the estate on your behalf.
If any of the lines on your K-1 have a loss, enter the numbers as a negative (-4,770, for example).
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