pay capital gains tax rental sale

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Topic Author
Ani
Posts: 121
Joined: Wed Aug 22, 2018 10:03 pm

pay capital gains tax rental sale

Post by Ani »

Hi all,

I sold 2 rental properties this year. August end and mid september.
1st one sold for 40k profit and 2nd one sold for 50k profit. I havent added up all the numbers yet to include the improvements in the basis.

Should I wait till 2022 when I file my taxes for 2021 to pay the capital gains on this?

Or should I make an estimated tax payment this year to avoid penalty/ interest?

What form should I use to calculate the estimated tax payment for these capital gains.

thank you.
Makefile
Posts: 999
Joined: Fri Apr 22, 2016 11:03 pm

Re: pay capital gains tax rental sale

Post by Makefile »

Did you already account for recaptured depreciation?

You use 1040ES to calculate estimated tax, but it isn't going to be sophisticated enough to handle this. A dry run tax return (or just practice with 2020 software if you have it) to see what the gain in the end is going to be would be best.

4th quarter estimated tax is due Jan 18, 2022. You may have owed some 3rd quarter estimated tax too. It gets complicated because there are some safe harbor rules involving withholding and on-time estimated tax (90% of this year's tax, 110% of last year's, sometimes 100% of last years, etc.) and a Schedule AI you can file to your advantage when a disproportionate amount of income occurred toward the end of the year. That would help avoid an underpayment penalty (interest). You might make a late Q3 payment now to reduce the underpayment penalty if it's unavoidable, or crank up your withholding if you can as withholding is treated as paid evenly throughout the year. Thus the reason to practice a dry run return in tax software rather than trying to guestimate.
random_walker_77
Posts: 1667
Joined: Tue May 21, 2013 8:49 pm

Re: pay capital gains tax rental sale

Post by random_walker_77 »

See the "Safe Harbor Rules"
https://www.hrblock.com/tax-center/irs/ ... x-penalty/

Barring that, look into form 2210 schedule AI for uneven income (also described at the above link)

Finally, for the sale of rentals, look into the recapture of depreciation ( you have been deducting depreciation every year, right?):
https://learn.roofstock.com/blog/rental ... -recapture

If you don't normally do so, this might be the year to hire a CPA for your taxes...
brian91480
Posts: 341
Joined: Fri Jan 29, 2021 7:44 pm

Re: pay capital gains tax rental sale

Post by brian91480 »

Not a sarcastic question: I use Turbo Tax. Can simple software like Turbo Tax not handle this situation?

I have a rental property that I may sell in the future. I hope I don't need to hire a CPA!

--- Brian
Topic Author
Ani
Posts: 121
Joined: Wed Aug 22, 2018 10:03 pm

Re: pay capital gains tax rental sale

Post by Ani »

Thank you all.

Yes I have been depreciating the rental every year. I will check out these links.

I sold the homes this year in 2021. I guess I have to use the TT2021 software and not the 2020 software rite?

I bought the turbotax 2021 software, but they are still not opening the rental sale section of the software. There’s a pop up there that says, still waiting for the final rules for 2021.


I switched to turbotax last year after all CPAs that I hired over the last 3 years made errors on my returns.

I am considering hiring a CPA for this year. Hopefully I can find a good one.
pshonore
Posts: 7427
Joined: Sun Jun 28, 2009 2:21 pm

Re: pay capital gains tax rental sale

Post by pshonore »

brian91480 wrote: Fri Nov 19, 2021 10:54 pm Not a sarcastic question: I use Turbo Tax. Can simple software like Turbo Tax not handle this situation?

I have a rental property that I may sell in the future. I hope I don't need to hire a CPA!

--- Brian
Turbo Tax can handle the sale provided the property was set up correctly in TT when purchased and updated each year of ownership. However it will ask you to fill in Form 2210AI (if required) because it has no idea when you received income throughout the year.
random_walker_77
Posts: 1667
Joined: Tue May 21, 2013 8:49 pm

Re: pay capital gains tax rental sale

Post by random_walker_77 »

Ani wrote: Sat Nov 20, 2021 7:40 am I sold the homes this year in 2021. I guess I have to use the TT2021 software and not the 2020 software rite?
Tax rates and brackets don't change all that much from year to year. Use the 2020 to run a dummy return for the purposes of estimating 2021 taxes.

For TY2021, it's not a bad idea to run it through turbotax in addition to hiring a pro to either review or prep it. It sounds like you're not as familiar with taxes, and the rental sales make this a more complicated year. This would be the year to have professional advice
random_walker_77
Posts: 1667
Joined: Tue May 21, 2013 8:49 pm

Re: pay capital gains tax rental sale

Post by random_walker_77 »

brian91480 wrote: Fri Nov 19, 2021 10:54 pm Not a sarcastic question: I use Turbo Tax. Can simple software like Turbo Tax not handle this situation?

I have a rental property that I may sell in the future. I hope I don't need to hire a CPA!

--- Brian
TurboTax ought to be able to handle it, but you still want to know what you're doing. If you've done the research, you should be able to do it, though given the higher amounts at stake on years when you're selling houses, I think it'd be good to get professional advice. If you've done it before, know the general rules, and know what you need to go research, then maybe the professional advice is superfluous (but perhaps still prudent, depending on the dollar figures involved).
HoberMallow
Posts: 95
Joined: Sun Feb 12, 2017 3:04 pm
Location: SoCal

Re: pay capital gains tax rental sale

Post by HoberMallow »

I also sold a rental this year. I was able to mock up my 2021 return using TT 2020. The 2021 version is still missing too many forms to be usable.

I couldn't get it to work correctly using the interview mode. With a rental, you have to enter the sale of the land and the sale of the building separately. TT knows the basis of the building because you've been depreciating it, but I couldn't find anywhere to enter the basis of the land. It assumed it had a zero basis, and was calculating way too much in capital gains.

I was able to fix it in forms mode. Under the Schedule E Worksheet, there is a separate worksheet for each asset being depreciated. On line 4, you enter the total basis (land and improvements). Line 8 is the basis of the land, line 21 is the sale price of the improvemets, and line 24 is the sale price of the land. Those values are transferred to Form 4797. The land sale is reported in part 1, and the improvements sale in part 3. The gains are combined and end up on Schedule D line 11A. The Schedule D Tax Worksheet then works out the portion that is taxed as capital gains and depreciation recapture.

This is my first time doing this, but the forms all end up as I expected.
Topic Author
Ani
Posts: 121
Joined: Wed Aug 22, 2018 10:03 pm

Re: pay capital gains tax rental sale

Post by Ani »

Thank you all

All the other non-turbotax CPAs I have had so far were not perfect either.

Will try turbotax Full service this year--they will prepare the taxes for me.

some 'tax experts' i have spoken to there are clueless, but most of them were good and helpful.

Will see how it goes with the turbotax cpa--Will pay about 370 for federal + 2 states.
bsquared
Posts: 51
Joined: Mon Jun 17, 2013 12:18 pm

Re: pay capital gains tax rental sale

Post by bsquared »

Ani, Please reconsider your decision to use TurboTax as you described and take some of the advice you have received here. You have had some good responses, and I hope you will take advantage of them.
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Harry Livermore
Posts: 959
Joined: Thu Apr 04, 2019 5:32 am

Re: pay capital gains tax rental sale

Post by Harry Livermore »

I would be tempted to make an EST payment, at least 4th quarter. You have already missed the 3rd quarter.
As a lifelong self-employed person, who has had a few years with very large cap gains, and many years with gains from selling fully depreciated equipment on the business side, I can tell you that I never get it exactly right, and we often owe, with interest, after the CPA and I run the returns. We have only owed a penalty once though. The interest is not too bad, the penalty was large enough to be annoying.
So I would pay a 4th quarter EST make an attempt to avoid the penalty in any case.
Cheers
Topic Author
Ani
Posts: 121
Joined: Wed Aug 22, 2018 10:03 pm

Re: pay capital gains tax rental sale

Post by Ani »

Sorry, not sure why i didnt get the notifications for above replies.

Im using this blog for calculating my estimated payment

https://learn.roofstock.com/blog/how-mu ... l-property

turbotax live is not open yet apparently
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