Hal_Al
Level 15

Deductions & credits

Q. As a result, TurboTax calculated the I owed an underpayment penalty of $10,000. Does that sound right?

A. No. In the case of a big jump in income, the underpayment penalty is calculated on your previous year tax liability.

For example, with the real estate sale, you have a 2022 tax liability of $50,000. You tax liability for 2021 was $10,000.  You only had $8000 of withholding for 2022. Your penalty is calculated on the $2000 difference between $10K and $8K, not the $45,000 difference between  $50Kand $8K*.

 

Depending on when, in 2022, the house was sold, the penalty could be reduced further, using the "annualized" method to calculate the penalty. 

 

Go through the penalty calculation again. 

In TT enter at:

 -Federal Taxes  (Personal in  H&B version)

   -Other Tax Situations

      -Additional Tax Payments

         -Underpayment Penalties

 

*More accurately, it would be the $37,000 difference between $45K (90% of $50K) and $8K.