A 1099 was most likely generated from the sale so I think you would want to prepare one rather than deal with notices down the road.

the beneficiaries may have some gain or loss to include from the sale on their return as well.

Are you talking about an "Estate Tax Return" (706), or an "Estate  Income Tax Return (1041)"

The more precise the question, the more likely the answers are to be usable.

I am filing a 1041. Its because the estate sold the decedents home.  Im also trying to use the section 121 exclusion so their will be no capital gain. Do you know the correct way to override the program to accomplish this.  Thanks!

What was the time period between the Date of Death, and the date of sale - That would be the only appreciation that is taxable, as the estate should have received a step up basis in the property to FMV as of Date of Death.

I don't believe section 121 is available.

Under new Section 121(d)(9), an estate or heir can exclude $250,000 of gain if the decedent used the property as his or her principal residence for two or more years during the five-year period prior to the sale.

Good to know.

Can that be combined with Step up Basis? (Truly asking as I don't know)

Stepped-up basis is a tax law that applies to estate transfers. This transaction is part of the estate!

Edited after re-reading your last post. (And I am not sure I understand your statement about step up) The step up basis occurs at the moment of death (so to speak) so assets in the Estate - get the step up basis in computing any gains on sales. (At least that is how I have always seen it done.)

By your comment that you want to use Section 121, there must be a gain on the sale.

It seems to me that if you have a Gain, and want to take an exclusion, you would have to file the return to calculate and report the gain and claim the exclusion.