Estimated taxes for sale of rental house

[AuldFort]

I live in California, and just sold a rental house we owned in Seattle. No tax was withheld.  The house was sold for about 800K, and we owned it for 15 years. I'm retired, my wife works, but our combined, normally a little more than 100K, will be under that without the rental income. 

So, I'm wondering about estimated tax payments for 2022 tax year. Of course, I'm also worried about the amount of taxes, but I don't want to do an exchange - I'm tired of it.

I've read a bit about the requirements for estimated taxes, but it's not clear to me how to apply what I read. Usually, my taxes are fairly simple, but this next year may be a bit more complex, and I'm not sure if I need to hire an accountant or advisor or not. So if anyone has a fairly simple answer or guidance, I'll be grateful. 

[ColeenD3]

The easiest thing to do is to create a mock return and include the gain. This will give you an idea of what to expect next year. You will make a payment each quarter.

Please see this LINK for the due dates of the payments.

[AuldFort]

Thanks, that was what I planned to do, now that I filed for this year. And thanks for that link about due dates;

But perhaps you might know the answer to a couple of quickies... The sale closed April 5. So, fortunately, I don't have to pay the first installment til June. Your link took a load off my mind about that, as I was afraid I had to rush to finish by Apr 18, and I'm happy for a brief break.

My other question is whether I need to pay all the taxes in June, or just 1/3. And also, I've read that if I pay the amount of this year's tax, I would avoid any penalties. Do you know if that's correct? I'm guessing that includes withholding from other sources?

Thanks for your help so far. I hope you, or perhaps some other knowledgeable member, can answer these other questions. 

[ColeenD3]

Just pay 1/3 in June. As long as you pay a sufficient amount by the due date, you should be fine regarding the penalty.

[AuldFort]

Since none of the answers were quite right, I'm answering my own question from what I've learned since posting.

First off, if you earn a lot more in one year like this, you don't need to do any real calculations to avoid underpayment penalties. You simply need to pay the at least 100% of the last year's tax (110% if AGI is above a threshold which I don't remember). Secondly, the first payment is only for income earned in Jan - March, so in my case, since the house sold in April, I get a reprieve until June.

Of course, you might want to at least estimate the amount in order to make sure you have enough to pay it when tax time comes around. The IRS frowns on not paying the full amount.

[Mike9241]

First off, if you earn a lot more in one year like this, you don't need to do any real calculations to avoid underpayment penalties. You simply need to pay the at least 100% of the last year's tax (110% if AGI is above a threshold which I don't remember). Secondly, the first payment is only for income earned in Jan - March, so in my case, since the house sold in April, I get a reprieve until June.

the threshold for AGI is $150,000. 1/2 that if married filing separate.

Secondly, the first payment is only for income earned in Jan - March, so in my case, since the house sold in April, I get a reprieve until June.

not quite the above only works if you use the annualized installment method and the tax for 2022

i

[SweetieJean]

State estimated tax requirements may be different from Federal.  

[NCperson]

@AuldFort - might be worth seeing an accountant and get some help.  While the focus of this thread is the date of the estimated taxes and what the minimum is to avoid penalties, might be worth getting your hand around the tax actually due - and then the date that avoids penalties.  

For arguement sake, let's use $800,000 sales price, and because you purchased the property 15 years ago, and I am keeping this very, very simple, your depreciated cost basis of the property is just $200,000.  That is a $600,000 capital gains, which will be taxed @ 23.8% federal and let's thrown in 10% (whether that be WA or CA) for state income tax,,,,, that brings the tax into the $200,000 range! 

the risk of penalties and interest if this isn't done correctly could exceed the cost of hiring a tax accountant. Best to figure it out by June 15!