A few years ago, my mom bought some stock for $100K. A couple of years later, she died and the stock was worth $70K. 9 months later, the stock was sold for $80K (to help pay the Form 706 estate taxes). Now, when I fill out the estate income tax return, Form 1041, Sch D, do I show a loss of $20K ($80K-100K), or a gain of $10K ($80K-70K)?
My reading of the 1041 instructions says it must be a gain as the basis is the value at time of death.
If I am required to show a gain, what happened to the ($70K-100K) loss? Is it just gone when she died? If so, that means one should sell their losers every year and try to use those losses on a 1040.