1041 question

[Jeter2016]

In 2017 our client sold her deceased mother's property. DOD was in 2012, resulting in a capital gain of 253,000 which flowed through a final K-1 of her mother's estate. The property was the personal residence of her mother. The K1 is reflecting this as a capital gain and when it flows over to our client's return, this is being considered as capital gain with an Net Investment Income Tax being assessed on it.

1) Should the capital gain on the sale of the mother's personal residence be taxed? I believe it must
2) If it should be taxed, should the sale of the inherited residential property be considered an investment sale subject to the additional Net Tax.

Thanking everyone in advance,

[Burke]

Was the capital gain of $253K actually the increase in FMV since 2012? If yes, the cap gain is taxable. The estate would have received stepped-up basis at the DOD. Did the home go to the estate by virtue of the will with the right to sell included in the wording? If it flowed through to the beneficiary on the K-1 it would be taxable to the client. All income retains its same character when it passes through to the taxpayer. And yes it would be subject to NIT. Unfortunately, if this property was a personal residence, Sect 125 was lost as it was not sold within 2 years of DOD.