Capital Gains Withholding

[MikeG74]

We plan to sell our second home in Arizona.  We are not planning to replace with like kind.  We expect to incur between $150,00 and $200,000 in capital gains.  Our 2021 AGI was $166,000.  Our 2021 Total Tax was $18,993 and we had $18,813 Federal Tax withheld.  We expect approximately the same withholdings in 2022 and 2023.

• If the second home sells in 2022, will we have to make State and Federal withholding payments immediately or can we wait until filing in March 2023?  We expect our normal withholding to be far short of the Capital Gains Tax incurred.
• If the second home sells in 2023, can we make quarterly State and Federal withholding payments?

[KochuK]

Hi MikeG74, thank you for attending the event and posted questions.

To reply:

If the 2nd home sells in tax year 2022, as long as you paid in110% of 2021 tax liability - $20,293, you should not incur underpayment penalty even if you have a large balance due from the capital gain when filing tax year 2022 income tax. Please refer to below link, page 1 "General Rule" and "Higher income taxpayers".

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

You can use IRS Online pay to make up the difference between current withholding and required withholding. I would round up to $21,000.

https://www.irs.gov/payments/direct-pay

If the 2nd home sells in tax year 2023, the above rule still applies. That is, make sure the total Federal income withholding is 110% of 2022 tax liability in order not to incur any underpayment penalty.

That being said, if you desire a small balance due (in lieu of not incurring underpayment penalty), you can always send in estimated tax payment via IRS online pay.

Hope the above helps. Thank you.