Estimated taxes on sale of vacation home

[erwinturner]

My husband and I are about to close on the sale of an out-of-state vacation home (never used as a rental, owned for 24 years), and our only income for the year will be the proceeds of the sale. Our profit will be about $400,000, after taking into account the original purchase price plus improvement costs over the years and sales costs. I believe we count the first $96,700 (married filing jointly) as regular income and the approximately $300,000 over that as capital gains. We will have the required 2% state withholding sent by the closing company to the state in which the property is located as part of our closing process, but I will need to send the IRS an estimate of our 2025 taxes based on our profit from the sale. Our effective tax rate on regular income last year was ~12%. I was planning to send in $55,000 to the IRS after closing next week. Does that sound reasonable?

[AmeliesUncle]

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@erwinturner wrote:

Our effective tax rate on regular income last year was ~12%. I was planning to send in $55,000 to the IRS after closing next week. Does that sound reasonable?

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You will probably owe more than that.

You said "effective" tax rate, which seems to indicate you were in the 22% tax bracket.  That mean the entire $400,000 will be taxed at 15%, which is $60,000.

But then you will also owe the Net Investment Income Tax.  Depending on the rest of your income, that could be an additional $10,000.

https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax

That 'extra' income could also have other negative consequences, such as reducing some credits or deductions.

You could create a 'mock' tax return and enter your estimated 2025 income, including the sale of the second home, to get a better idea for the results.