I sold my rental property, do I pay taxes now?

[jagermeister]

A few years ago I sold a large amount of stock to fund some large purchases and was surprised when I did my taxes that following spring that I was penalized for not paying enough tax during the year.  

I just sold a rental property for a large gain.  Since this gain is considered investment income, do I need to estimate the taxes owed and send a check into the IRS now so as to avoid any penalties?  I know with real estate investment sales I also have a certain amount of time to determine if I want to do an exchange.  Does that factor in in any way?

Thanks.

[tagteam]

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@jagermeister wrote:

I know with real estate investment sales I also have a certain amount of time to determine if I want to do an exchange. 

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If you have already closed on the sale and actually, or constructively, received the funds, then it is too late to consider a (like-kind) 1031 exchange. You need to use a Qualified Intermediary (i.e., qualified third party) to hold the cash from the sale in the scenario you described.

[tagteam · Accepted solution]

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@jagermeister wrote:

...do I need to estimate the taxes owed and send a check into the IRS now so as to avoid any penalties? 

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You can avoid the penalty for underpayment of estimated tax if:

1) You owe less than $1,000 in tax after subtracting your withholding and refundable credits; OR

2) You pay withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on your return for the prior year, whichever is smaller.

[Carl]

Safest bet is to go ahead and pay the IRS 20% of your taxable gain now, if not sooner. You can do so online at http://www.irs.gov/payments.

If your state taxes personal income, you'll need to pay your state estimated taxes too, separately from the federal tax payment to the IRS.

[tagteam]

If your adjusted gross income (AGI) for 2018 was more than $150,000 ($75,000 if your filing status for 2019 is married filing separately), then you need to pay at least 90% of the tax for the current year or 110% of the tax shown on your return for the prior year, whichever is smaller, in order to avoid a penalty.

[jagermeister]

Thanks for the replies!

So, I estimated my total tax withholding for this year by looking at my current paystub's ytd federal tax withheld and extrapolating out to the end of the year.  I compared this figure with my total federal tax owed from last year's 1040 which is located on line 15.  My extrapolated figure is well above 110% of last years tax owed so I should be ok.

Thanks for your help!