Sale of Second Home

[calcounty]

I unexpectedly sold a vacation home in September, 2025 for a net gain of ~$200k. I made two good-faith estimated payments (total $25k) and I still got hit with a penalty on my federal. Is there any way to avoid this penalty? I certainly didn't plan on the sale earlier and did my best guess at what I would owe.

[DavidD66 · Accepted solution]

You need to annualize your income on Form 2210.  The IRS (and therefore tax software) assumes your income (including capital gains) is earned evenly throughout the year (e.g equal amounts each quarter) and calculates under payment penalties accordingly - unless you tell them differently.  To annualize your income to show your gain from the sale was in Q-3:

• Locate the underpayment penalties section by typing "underpayment penalty" into Search, then hit Enter
• Click on "Jump to underpayment penalty"
• Click "Continue" on the "Underpayment penalties" page
• The program will guide you through some questions.  You will need your 2024 tax liability and AGI if you didn't transfer a 2024 Return into TurboTax for 2025.
• Indicate you want to use the "Annualized income method"
• Continue and enter your income and deductions, and other information by quarter

See the Following TurboTax Article for more information: 

Form 2210 Instructions: How to Calculate and Pay Estimated Taxes to Avoid Penalties