However, Sec. 643(e)(3) provides that a fiduciary may irrevocably elect to recognize gain or loss on the distribution, as if the property distributed had been sold to the beneficiary at its fair market value on the date of the distribution. If such an election is made, the income tax basis of the property received by the beneficiary would be the adjusted basis of such property in the hands of the estate or trust prior to distribution adjusted by the gain or loss recognized by the estate or trust on the distribution. (The election shall be made on the fiduciary return for such taxable year, and shall apply to all distributions made by the estate or trust for that year. Once made, the election may not be revoked without the consent of the IRS.)
As previously mentioned, the decision as to whether or not to make the election will also effect the amount allowable as a distribution deduction to the estate or trust under Sec. 661(a)(2) and the amount that the beneficiary reflects as income under Sec. 662(a)(2). If the fiduciary does not make the Sec. 643(e)(3) election, then the estate or trust’s distribution deduction and the amount included in the beneficiary’s gross income is based upon the lesser of 1) the basis of the property in the hands of the beneficiary, or 2) the fair market value of the property at the time of the distribution.
https://www.cpajournal.com/2017/09/29/tax-planning-distributions-kind-estates-trusts/
