Had to sell my mother in laws house in July 2018 which was a Life Estate and my spouse was a remainderman.
My mother in law is still alive and has been in a Nursing Home for several years.
We incurred large long term capital gains on sale of house and this resulted in an underpayment of taxes.
I knew there would be tax consequences given that the mother in law is still alive.
Turbo Tax applied a penalty dollar amount and my question is - Is this type of transaction something that might be appropriate in asking/requesting for a waiver of penalties?
try working through Form 2210AI....
the IRS assumes equal income throujghout the year and determines the penalty on that basis
however form 2210AI permits you to reflect 'lumpy' income. In your case it's 'lumpy' because you have this one time event in July. That should at least reduce any penalty as there was relatively little income in the 1st half of the year
Penalties are also based on your prior year's tax liability. The general rule is that you need to pay in 90% of the current tax or 100% of the prior year tax. So if you owe $15,000 this year and only paid in $10,000 you would be subject to the penalty because you did not pay in 90%, but if last year's tax was only $10,000 there will be no penalty due. So maybe find where to put in last year's tax due.
Just a question/something to consider.
Who calculated the gains to be reported by the remaindermen? It has been a long time since I've looked in that area, but as I recall, that is a somewhat complex calculation to split the gain between person who has the life estate and the remaindermen.
You might want to review those calculations and how they were done to make sure it was done correctly.