Penalty on estimated payment

[kristinelise57]

I sold a rental house in Dec of 2020. At the time of sale I paid an estimated state tax. The only place I can see to enter this is in the estimated taxes section, but when I do this it says I owe a penalty (presumably because the entire payment wasn't made until the 4th quarter, when the house was sold). How do I rectify this?

[MaryK4 · Accepted solution]

You can use the Annualized Income Installment Method.

If you don’t receive your income evenly throughout the year (for example, your income from a repair shop you operate is much larger in the summer than it is during the rest of the year), your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method.

In Turbo Tax, look for the screen that says "Possible Penalty Exception"  - go through and answer the questions and TurboTax will create the forms needed to report to the IRS to have the penalty removed.

[kristinelise57]

I have to say this was very confusing in TT (I thought the program was supposed to take me through things clearly, step by step!). I think I finally got it fixed by annualizing the income. Thanks.

[kristinelise57]

Actually, I replied too soon. Once I entered all the annualized info (and I made sure each box had the correct cummulative amount), it still said I owed a penalty! This can't be. The sale was in Dec and I paid the tax in December! Many of the questions in this section didn't apply to me, because I don't usually make estimated tax payments. This was simply state tax that they required I pay up front out of the proceeds from the sale. I have no other estimated taxes to report.

[kristinelise57]

So I'm now guessing that the penalty is for not paying FED tax on this Dec windfall by Jan 15, 2021. Am I correct? Another confusion--as I proceed through the penalty section, I see this screen:

How on earth am I paying by Apr 2020 when it's already 2021? This is just making no sense.

[ThomasM125]

The fourth quarter estimated tax is due January 15, so if you paid it after then you may get a penalty. 

The due date for 2020 tax returns in April 15, 2021, so if you are seeing that in the 2020 TurboTax program, it is wrong. TurboTax rolls out their program as early as possible to allow tax payers to begin work on their tax return, but updates are common early in the tax season.