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iamenu
Level 1

Estimated tax on cap gains?

I will be closing on sale of a home next week and have a significant amount of capital gains. The basic question is do I need to estimate taxes for a one time capital gain and prepay them during the year to avoid a penalty? Since it won’t be reported on a W-2 as income, is it treated the same way. Also I read that estimates are due by September 15 for the third quarter, but because of the closing date the money will not be available to me until after September 15. So when would I need to pay it if I do need to?

4 Replies
Bsch4477
Level 15

Estimated tax on cap gains?

I assume that you didn’t live in the home and so are not eligible for the capital gain exclusion.  Most taxpayers pay 15% on long term capital gains. You may be taxed differently by your state. Pay half of your anticipated tax as soon as you can and pay the rest byJanuary 17.  

Mike9241
Level 15

Estimated tax on cap gains?

There will be no federal penalties for not paying in enough taxes during the year if withholding

1) and timely estimated tax payments equal or exceed 90% of your 2022 tax or

2) and timely estimated tax payments equal or exceed 100% of your 2021 tax (110% if your 2021 adjusted gross income was more than $150K) or

3) the balance due after subtracting taxes withheld from 90% of your 2022 tax is less than $1,000 or

4) your total taxes are less than $1,000

 

the lower of 1 or 2 is your required annual payment.  under the simplified method for estimated tax penalties, 25% of this amount must be paid in by 4/18, 50% by 6/15, 75% by 9/15 and 100% by year-end.

 

failing this and being subject to penalties you can use the annualized installment income method. 

this method requires knowing your income and deductions thru 3/31, then 5/31, then 8/31, and finally tear end which should be the same as the tax return. the income is annualized. taxes are computed on the annualized income and then de- annualized. your tax payments for each period must equal or exceed these amounts to avoid penalties

 

form 2210 page 3

https://www.irs.gov/pub/irs-pdf/f2210.pdf   

 

state laws vary

 

 

iamenu
Level 1

Estimated tax on cap gains?

I didnt live in it, and am not buying another property with the proceeds.  It will be a one-time lump sum from the sale and I will get it in September, so I THINK the estimated tax payment is due by Jan 15.  I was hoping it would be treated diff since it was a one-time event, but see now it isnt.  The next challenge…figuring out how much is considered a gain.  For example, the state will require a payment (withheld at time of sale) of 7.25% of the gain.  Do I reduce my gain on the fed taxes by the amount I pay to hawaii?  Sooooo confusing! 

VolvoGirl
Level 15

Estimated tax on cap gains?

No what you have withheld or pay to state doesn't affect your federal return.   The whole gain is taxable on federal.  It will add to your income and may push you into a higher tax bracket.  

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