I sold rental property at a nice profit. Turbo Tax has automatically calculated an underpayment penalty.

Forum|Forum|3 years ago
March 19, 2023
2 replies
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We sold rental property at a very nice profit in March, 2022. Turbo Tax has added a $1600 underpayment of tax penalty for federal and $400 for state!!

We are retired and have no income otherwise except for Social Security and a small amount of income from a different rental property. Is the Turbo Tax program correct in this calculation? Is it really mandatory to pay estimated quarterly taxes on the sale of real estate? Is there some way to get the overpayment penalty waived?

VolvoGirl

Employee

You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

1597980

I have a similar situation. I sold my rental property in December 2022 and TurboTax shows underpayment of tax and calculates penalty on the underpayment. I followed your instructions and ended up with a smaller amount of penalty. However, I'm not sure if I entered the information correctly on Form 2210 for the "annualized income". Does rental income need to be included in each period? The instruction says to include partnership or S-Corp income but my rental is neither. Also, do I need to add the interest income received in my bank account? It is not mentioned in instructions and I only received one 1099 at year end. Do I have to pay estimated tax on the capital gain even though the sale took place in December? Could I ask for waiver of penalty because I would not have owed any taxes otherwise? The instruction seems to indicate IRS grants waiver only if you retire after age 62 or there was some sort of disaster (neither of which applies).

Thank you!

DavidD66

Yes, you have to pay estimated tax on capital gains that occurred in December. Estimated tax payments for the fourth quarter were due January 17, 2023. When completing Form 2210, yes, your net quarterly rental income/loss should be included. You should also include interest income. It is highly unlikely the IRS would waive the penalty for underpayment of estimated tax in your case.

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