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rkad29
Level 2

Estimating Fed, State ES payments due to Jan rental sale when other 2022 income unknown

Sale of rental property was in Jan 2022 after many years of renting.

 

I found a cap gains calculator here https://apiexchange.com/capital-gain-tax-calculator/ (but with unclear results) via another post on this topic, however there are other factors that make it a challenge to come up with an estimate of what we will owe and how much to send in as ES payments: EDIT: I'd like to avoid not just Penalty but Interest as well.  My state charges monthly interest regardless of penalty.

 

-No W-2 income, and our other capital gains/losses for 2022 on investments are as yet unknown

-We have significant medical expenses/deduction that reduce taxable income, but don't know the full amount at this time.

-While we'll owe on any gain on sale in our home state, where the only other income is investments and Soc Sec, the property and our rental income is all in another NR state (is that even a factor?).

-There is a difference in the Fed and my home state's treatment of depreciation, where my home state allows less: will this affect depreciation recapture on the sold property and thus taxable gain in my home state?

-What is the safe amount to pay in, to avoid penalty at least?

 

What's the best way to figure this all out since there's no TT 2022 out yet?  I though about creating a "mock 2022" using my 2021 return, "as if" the sale occurred in Dec 2021 instead of Jan 2022 however: we used up a large capital loss carryover to offset 2021 cap gain on another rental sale;  plus inserting this sale as if done in 2021 would greatly inflate both our LT gain and our taxable income in one year, so not sure that would be a reliable way to estimate ES. I could try deleting the 2021 sold rental property completely from the mock 2022 return, and overriding the carryover loss amount as zero.  Could that be fairly accurate, all other factors considered?

 

1 Best answer

Accepted Solutions
Bsch4477
Level 15

Estimating Fed, State ES payments due to Jan rental sale when other 2022 income unknown

Don’t over think it. 

You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:

 

  • Your filed tax return shows you owe less than $1,000 or

  • You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year,
  •  
  • This rule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI)on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

    Your state will also have estimated tax payment rules that may differ from the federal rules.

 

 

 

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4 Replies
Bsch4477
Level 15

Estimating Fed, State ES payments due to Jan rental sale when other 2022 income unknown

Don’t over think it. 

You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:

 

  • Your filed tax return shows you owe less than $1,000 or

  • You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year,
  •  
  • This rule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI)on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

    Your state will also have estimated tax payment rules that may differ from the federal rules.

 

 

 

rkad29
Level 2

Estimating Fed, State ES payments due to Jan rental sale when other 2022 income unknown

I still need to worry about interest on the unpaid balance, so would like a fairly accurate estimate to avoid a big gap in what's due.

 

Bsch4477
Level 15

Estimating Fed, State ES payments due to Jan rental sale when other 2022 income unknown

Not sure what interest you are referring to. No interest due on the unpaid balance if you pay your bill by April 15. 

rkad29
Level 2

Estimating Fed, State ES payments due to Jan rental sale when other 2022 income unknown

My state's rules are different from the Federal regarding underpayment of Estimated tax; the DoR rep at my state said there was no getting around 9% annual interest applied for each day of underpayment in each prior quarter, even if I paid in 100% of last year's amount owed, now. But the state form for calculating underpayment has instructions that say an exception is made if you pay in enough to equal last year's tax liability at this year's rates, so I paid in last year's amount and hope it's enough to qualify.

 
 
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