Estimated taxes on sale of vacation home

Forum|Forum|11 months ago
May 2, 2025
1 reply
0 views

My husband and I are about to close on the sale of an out-of-state vacation home (never used as a rental, owned for 24 years), and our only income for the year will be the proceeds of the sale. Our profit will be about $400,000, after taking into account the original purchase price plus improvement costs over the years and sales costs. I believe we count the first $96,700 (married filing jointly) as regular income and the approximately $300,000 over that as capital gains. We will have the required 2% state withholding sent by the closing company to the state in which the property is located as part of our closing process, but I will need to send the IRS an estimate of our 2025 taxes based on our profit from the sale. Our effective tax rate on regular income last year was ~12%. I was planning to send in $55,000 to the IRS after closing next week. Does that sound reasonable?

AmeliesUncle

@erwinturner wrote:
Our effective tax rate on regular income last year was ~12%. I was planning to send in $55,000 to the IRS after closing next week. Does that sound reasonable?

You will probably owe more than that.

You said "effective" tax rate, which seems to indicate you were in the 22% tax bracket. That mean the entire $400,000 will be taxed at 15%, which is $60,000.

But then you will also owe the Net Investment Income Tax. Depending on the rest of your income, that could be an additional $10,000.

https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax

That 'extra' income could also have other negative consequences, such as reducing some credits or deductions.

You could create a 'mock' tax return and enter your estimated 2025 income, including the sale of the second home, to get a better idea for the results.