Capital gain inherited by deceased is not passing on to heirs

[Matilda]

I am completing an estate tax return form 1041.  The deceased inherited money that included a net long term capital gain of $10,000.  The deceased estate received a K1 form.  The gain was passed from the other estate to my persons estate but I can not pass it to my persons heirs for tax purposes - they do get the money.  The estate is being taxed on this amount with all other income being passed on to heirs.  Can I get around this?  I thought all inherited income could pass on to heirs for tax purposes.  Unfortunately I do not have the money to pay this in the estate - I will have to pay it myself.  I thought all inherited income would be passed on for taxation to the heirs.

[Anonymous_ · Accepted solution]

If you are using TurboTax Business, there is a procedure you need to follow.

First, you need to allocate the capital gain to the beneficiaries and then to income before you can distribute the gain (see screenshots).

[Anonymous_]

If you are using TurboTax Business, there is a procedure you need to follow.

First, you need to allocate the capital gain to the beneficiaries and then to income before you can distribute the gain (see screenshots).

[Mike9241]

since it is capital gain, either the trust must permit or require the distribution, or state law must allow a discretionary distribution. 

[Anonymous_]

This is an estate, not a trust, so there is likely to be only one return to be filed (the last) and gain can be passed through regardless.

[Matilda]

Thank You.  This is the third return I've done and I don't remember doing that before, but I checked my prior returns and it had been filled in.  This solved my problem.