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me: Normally, you would be correct. The individual reports gain/loss on inherited property when sold. The estate or trust pays taxes on net capital gains generated within the estate/trust but cannot deduct excess losses against other income. (No $3000 net capital loss allowance). Excess capital losses are carried forward until they offset capital gains or the estate/trust is closed. At that time, any remaining capital losses are distributed to the beneficiaries in accordance with the terms of the will/trust document.

Oh. Thanks. It's amazing how difficult they make the tax law. That's why I recommend getting a tax accountant if your tax situation is complicated. It's worth the peace of mind.
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