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I have significant long-term capital gains on the sale of my primary residence in California. When do I have to pay my capital gains tax so that I don't have a penalty?

 
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jtax
Level 10

I have significant long-term capital gains on the sale of my primary residence in California. When do I have to pay my capital gains tax so that I don't have a penalty?

I can't comment on CA tax, but for the feds here's some info. Most states do something very similar. I will assume the sale happened in 2020.

 

First off  see IRS Pub 505 https://www.irs.gov/pub/irs-pdf/p505.pdf

 

The latest you can pay is 4/15/21. There will be no penalty if you meet the safe harbor rule depicted on page 21, figure  2A. Basically that is that you have paid (via withholding or estimated taxes or some credits) either 90% of what you will owe for tax year 2020 or 100% (110% if AGI > $150k) of what you did owe for TY 2019.

 

If one of those applies you could owe and pay a billion dollars on 4/15/2021 and pay no penalty or interest.

 

These usually work very well if, like you, your income is increasing and you have money. Then you just make sure you have paid 100% (or 110%) of last year's liability (e.g. 2019 Form 1040 line 16. I think-double check that). 

 

Also note that you need to have made those payments evenly throughout the year in 4 payments (4/15, 6/15, 9/15, and 1/1). Well, that is the default. There are exceptions for time-varying income. They are a total pain to use. Very complicated. Requires basically figuring your taxes for each quarter to see if you paid enough.

 

See starting on page 25 of Pub 505.

 

 

My suggestion is to pay estimated tax via https://www.irs.gov/pub/irs-pdf/f1040es.pdf once you your house has sold such that you will have paid by 12/31/20 a total of 110% of your 2019 tax liability when you add that payment plus your regular withholding. If you have no other withholding review Pub 505 and decide. In that case I would pay evening by quarter. You can either include any missed quarters in the first payment (rounding up to cover interest, ugh) or plan on going through the complex annualized method next year to get rid of the penalties on form 2210. https://www.irs.gov/forms-pubs/about-form-2210

 

 

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