How Pay Estimated Tax for large real estate sale gain on 12/15/21

[hocoseba]

Hello. I sold real property I owned for ~4 yrs on 12/15/21 for a large net gain after improvements. Should I pay the Federal estimated tax using the Jan 15, 2022, Estimated Tax form? I understand it's after the Jan 18, 2022 deadline (just recovered from Covid). Should I estimate the payment at 15% (long term capital gain)?

[DawnC]

You can, but you don't have to.   The transaction was at the end of the year, so if your pay your total tax bill by April 15, 2022, you should avoid any late payment fees.  That is provided you don't have unpaid tax liabilities in previous quarters of 2021.  

Underpayment penalties are assessed if you don't withhold or pay enough tax on income received during each quarter.   If you want to make a payment, you can mail in the 4th quarter Estimated Tax Voucher or pay it online at IRS - Payments.

[hocoseba]

Dawn, thank you for the explanation.

What is the cutoff date where, had the real estate sale and gain occurred prior to that date, late payment fees would have applied had an estimated tax payment for that gain not been made?

[DianeW777]

Yes, you should make the payment if you believe you will have a tax liability AND a balance due when your return is complete your tax return.  Fifteen percent (15%) should be a safe bet unless you believe your income will in the ranges listed. If your income is less (not including the gain) your rate could be 10%.

• A capital gain rate of 15% applies if your taxable income is more than $40,400 but less than or equal to $445,850 for single; more than $80,800 but less than or equal to $501,600 for married filing jointly or qualifying widow(er); more than $54,100 but less than or equal to $473,750 for head of household or more than $40,400 but less than or equal to $250,800 for married filing separately.

The estimated tax payment due January 15th does cover the last quarter of the year which would eliminate any penalty. However, if you had enough withholding during the year 2021  to cover 100% of 2020 tax liability (total tax on the return) then there is no need for an estimated tax payment in January.  Instead you can hold on to the money until you file your tax return assuming it is filed on time by April 18th, 2022 (for this year due to a holiday).