Are proceeds of sale of inherited property taxable to beneficiary?

Form 1041 is filed for the estate if any income is made after the date of death. This would include the sale of the property and any other income from the estate such as interest or dividends. A 1041 should be filed for the property sale because the estate will receive a 1099 for the proceeds from the sale and the IRS will be looking for this amount to be reported. It sounds like you will have a step up in basis on the property that will result in no gain from the sale.

It is a little unclear whether the property was distributed then sold, or sold and the proceeds distributed. The preceding answer addressed the latter. If the former, with a beneficiary receiving a distribution of an ownership interest at the time of death, with a step up in basis due to the receipt upon death of the original owner, there shouldn't be any capital gain. There are myriad related scenarios which could result in a different answer, so you should probably consult with a probate attorney to be sure (and or CPA). With all the facts, the answer shouldn't take too much time with an attorney. Good luck.