The final distribution of cash is not "income" to the beneficiaries. Each beneficiary will receive a K-1 which will show their distributive share of the losses in the final year of the estate. The losses will consist of the loss on the sale of the house and the administrative expenses, including attorneys fees and executor's fee. So, each beneficairy will receive cash and should receive a loss from the estate that they will then report on their personal income tax return. You should carefully review the IRS instructions for form 1041 and schedules D and K-1. Hope this helps.