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Who Pays Capital Gains Taxes When There Are Multiple Heirs?

Posted by Laura E. Stubberud | Jan 08, 2022 | 0 Comments

Generally, the capital gains pass through to the heirs. The estate reports the gain on the estate income tax return, but then takes a deduction for the amount of the gain distributed to the heirs since this usually happens during the same tax year. Then the estate issues K-1s to the beneficiaries passing through the gain. Schedule K-1 (Form 1041) is an official IRS form that's used to report a beneficiary's share of income, deductions, and credits from an estate or trust.

All of that said, estates usually have little or nothing in capital gains to report due to the step-up in basis. When you inherit real estate, the property's tax basis is “stepped up,” which means the value is re-adjusted to its current market value and often reduces or entirely eliminates the capital gains tax owed by the beneficiary.

About the Author

Laura E. Stubberud

Laura Stubberud has over two decades of experience in the practice of estate and family law in Nevada. After graduation from UCLA, she studied law at Southwestern University School of Law , graduating in 1992. With over 25 years of practice in Clark County, Nevada, Ms. Stubberud has substantial e...

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