estimated taxes for home sale

[dls2040]

I sold my home and will have to pay significant capital gains equaling about ten times my usual yearly tax.  According to Pub 505 I don't have to pay estimated taxes to pay the 15% on my home sale earnings since I will have more withholdings in 2022 than my tax in 2021. Yet other documents indicate I may have to pay estimated taxes. Any advice/help will be appreciated.

[rjs]

You can avoid the penalty for not paying estimated tax if your total 2022 withholding is more than your 2021 tax. If your 2021 AGI was more than $150,000 your total withholding has to be more than 110% of your 2021 tax.

Exactly what constitutes "your 2021 tax" is a somewhat involved calculation. It's not just one line on your 2021 tax return. The instructions for 2022 haven't been issued yet, but you can get a good idea by looking at the instructions for line 8 of the 2021 Form 2210, for calculating your 2020 tax. Those instructions reference the 2020 Form 1040 and schedules, so some of the line numbers will be different for the 2021 forms, and some of the details might change.

If you file as married filing jointly for either 2021 or 2022, but not for both years, additional rules apply. See the IRS Instructions for Form 2210.

Having enough withholding avoids the penalty for not paying estimated tax, but you still have to pay the full tax on all of your 2022 income. You will just have a big payment due when you file your 2022 tax return, instead of paying the additional tax during the year.

I am taking your word for it that your 2022 tax will be as high as you say it is, even after taking into consideration the exclusion of gain for selling your personal home.

[NCperson]

@dls2040 - be sure you have calculated the capital gains properly.

I assume this is your personal residence and you lived there at least 2 of the last 5 years:

the capital gains is:

1) selling price of the home

2) less the selling costs (e.g. the commission)

3) less improvements you made over the time of ownership

4) less the original purchase price

Whatever that result is the gain LESS the exclusion of $250,000 (single) or $500,000 (joint) is the capital gain that is subject to capital gains tax (normally 15% for most)

[SweetieJean]

Be aware of your State taxes as well.

[dls2040]

Thanks for the warning. Fortunately, I live in a state with no income tax.

[dls2040]

Thanks,

I am aware of this. I sold developable property that we have lived on for 40 years, so the basis is not close to the selling price. I will have to pay gains on about $700,000.

[dls2040]

Thanks for the info. I'll check out form 2210. We are filing jointly for both years. If we can delay paying until filing for 2022, we can earn some interest on the tax amount from now until then.

[Opus 17]

You are always required to pay estimated taxes.  The tax system is pay-as-you-go, and the requirement is always part of the system.  However, you won't be assessed a penalty for underpayment if you meet one of the safe harbors.  (In other words, its a rule, but there is no penalty for breaking it if you are careful.)

Be aware that, with your significantly larger income, your payment threshold is likely 110% of last years tax liability, not 90% or 100%.  Your total payments into the system (from withholding or estimated payments) must be at least 110% of your 2021 tax liability.  Your tax liability is on line 24 of your 2021 tax return.  It is the amount of tax you paid to the IRS, not necessarily the amount of your refund or additional payment in 2021.  (For example, if you paid $5000 in withholding, and owed a further $500 when you filed your return, your liability for 2021 was $5500, not $500.)