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jhugart
New Member

How can I handle estimated tax payments for capital gains from the sale of land I made this month?

My sister and I inherited 40 acres of forest land in Illinois in 1991. We just sold the land (December 2016). Clearly there's a capital gain; but I assume I have to pay an estimated tax on it right away. Is this correct? Can TurboTax help me calculate the tax estimate?

In addition, neither my sister nor I live in Illinois anymore. Will TurboTax detect this and determine if we need to file Illinois state taxes?
1 Reply
TomYoung
Level 13

How can I handle estimated tax payments for capital gains from the sale of land I made this month?

First, you will have to file Illinois state income tax as the capital gain clearly is "Illinois-sourced."  TurboTax will "detect" this because it will ask you if you earmed income in any other state.  The obvious answer is "Yes".

The way these things are typically handled is that you first prepare your federal income tax return.  Then you prepare your non-resident income tax return.  Finally you prepare your resident-state income tax return, reporting ALL your income, including the Illinois-sourced income.  Then you take a credit on your resident state income tax return for taxes paid to another state which, more or less, eliminates the "double taxation" issue.

It may or may not be necessary to file federal/state estimated taxes.  It's OK to owe the IRS or state taxing authorities a lot of taxes when you finally send in your income tax return, as long as you're not "underpaid" and subject to underpayment penalties.

Most taxpayers will avoid being underpaid (these are the federal rules, though most states have similar rules) if they :

1)owe less than $1,000 in tax after subtracting their taxes WITHHELD and available tax credits,

OR

2)if they paid at least the lesser of
       a)90% of the tax for the current year, or
       b)100% of the tax shown on the return for the prior year.  (If last year's return shows AGI over $150K (for married filing jointly) then change that "100%" figure to "110%.)

If neither of you have ever filled an Illinois income tax return it's unlikely that you'd be considered "underpaid" even if you don't pay estimated taxes.  (However, be sure to check Illinois's rules to be sure.)

At the federal and state level (check your state's rules to be sure) if your taxes withheld this year amount to as much as or more than the 2)b) "safe harbor", (for federal that's line 63 on the Form 1040 for most people), then you have nothing to worry about.

The way you have TurboTax help you calculate the possible need to pay 2016 estimated taxes is by using the 2015 TurboTax program and working through the "W-4 and Estimated Taxes" interview under the "Uncommon Tax Situations" tab.  (There's a similar interview for the resident state.)  If you used the online version of TurboTax for 2015, then that program is no longer available.  You can try using estimates of 2016 income/deductions/exemptions/credits/etc. using TurboTax's TaxCaster at https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

The federal information about estimated taxes as well as the necessary forms are at https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Your state will have similar information available at your state's taxing authorities' website.

Tom Young

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