Inheritance

[TAO3]

My wife's brother passed away last year.  The executor sent us a schedule K-1 with the following cover letter:

"Taxable income in the amount of $349,778 was generated while liquidating estate assets.
The estate income tax returns are being filed for the Estates of xxxxxxxxxxxxx and xxxxxxxxxx  for the period ended August 31, 2020. There is no federal or state Estate Income Tax due with their returns because the income, deductions and credits are being passed prorata to the estate beneficiaries."

When I plug the schedule K-1 amounts provided by the estate into TurboTax it increases my wife's tax liability by more than $30K.  Block 5 is the only significant number, about $85,000.  I thought inheritances in this range were exempt from Federal taxes.  

[Anonymous_]

A figure that appears on Line 5 of a K-1 (1041) is taxable income.

Among other things, it can be income from royalties, annuities, and income in respect of a decedent (IRD).