Why owe taxes on sale of property in an estate?

[l3therbuck]

My family member died and left a will stating house to be sold and proceeds distributed to 3 family members.  The property was not deeded to the 3 family members.  When sold the estate distributed the proceeds equally to the 3 family members.  Since the estate owned the property why do the beneficiaries have to report the proceeds of the sale on their federal and state tax returns? If they had been left cash no reporting itwould have been required.   What is the difference between getting cash from a sale of property vs getting cash from the estate?

[Mike9241]

the executor/trustee probably had the discretion of either paying the taxes at the trust level and distributing the remaining proceeds or distributing the gain and letting the beneficiaries pay the taxes. you need to talk to the executor/trustee. it's not the proceeds that the trust or beneficiaries are taxed on but the gain. 

some of the beneficiaries may be in a lower tax bracket than the trust so overall they end up with more money 

[Critter-3]

A trust or estate and its beneficiaries, or payable on death beneficiaries, get a step-up in basis to fair market value of the asset so received. That value is stepped up to the fair market value of the asset as of the date of death of the Decedent. 

DID the executor of the estate use a stepped up basis?   If they did not then have the amend the return.   

If they did then the K-1 form passed thru only  the profits on the sale which are taxed on a personal beneficiaries return as long term capital gains at a much lower rate than the much higher estate rate.  In the long run, the beneficiaries get much more money by having it taxed this way.