When do I have to pay estimated tax on a one-time capital gain?

Forum|Forum|3 years ago
April 15, 2023
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I am self-employed and my income fluctuates each year. I always pay quarterly estimated taxes each year, and I always file an extension every year, giving me more time to contribute to my individual 401k, which affects my final tax due amount.

This year in January 2023 I sold my rental property. I am not eligible for the capital gain exclusion so I will owe a large one-time capital gains tax on this sale.

My question is this: when do I have to pay (estimated) capital gains tax on this sale? Do I have to pay it now (April 2023) in order to avoid penalties? Or would I be safe paying estimated taxes equal to 100% of my tax bill from 2022? (I don't know my 2022 tax bill yet as I have an extension to October 2023 to file, so this would also be an estimate).

The amount is sizable enough that if I can wait to pay the capital gains tax until the 2023 tax deadline without penalty, it would be worth it.

Thanks for any advice

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Best answer by PattiF

Yes, if the 2023 estimated payments are 100% or 110% of the tax liability from 2022, you will be covered and avoid any penalty.

@fjordlander

PattiF

Here is a chart from Kiplinger with the dates for income earned and quarterly estimated payments:

Based on this chart, the estimated payment for the sale of the rental house should be paid on April 18, 2023. The IRS does place penalties on payments that they consider late.

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fjordlanderAuthor

Employee

@PattiF Thanks! According to the article you shared: "You can also avoid the penalty if your 2023 withholding or estimated tax payments equal at least 90% of your 2023 tax liability, or 100% of the tax shown on your 2022 return (110% if your 2022 adjusted gross income was more than $150,000)."

This sounds like no matter how much estimated tax is owed for Q1 2023, I would avoid any penalty as long as my total 2023 estimated tax payments equal 100% or 110% (depending on AGI) of my 2022 tax.

Right?

Thanks again.