California Withholding On Home Sale Gain
Hello,
I just sold my second home. I owned it 3 months...there was a $50,000 gain that is taxable. The California tax board withheld the required 3.33% of sale price which turn out to be $16,500. I have estimated what my taxes will be at the end of the year and the $16,500 will cover both the state and federal. I know that the California taxes will be paid from that amount when I file at year end...but what about Federal tax? My question is...Do I need to adjust my withholding or make estimated tax payment now or will I get a credit from CA tax board to use when I file my Federal return at the end of the year? My main concern is to avoid paying a penalty for underpaying taxes.
Thank you!!
You need to pay estimated taxes.
The CA withholding is ONLY for CA taxes. To the extent you owe for Federal, you will need to pay them separately (eg. through estimated payments or extra withholding on your paycheck if that would cover it). You can claim the CA taxes withheld on your CA return.
I believe you are referring to the exception to the underpayment penalty. The penalty exceptions are dependent on your income. If your income is over a certain amount the 100% of prior rule is substituted for a higher percentage (110% I believe) to avoid the penalty.
I suggest you pull the instructions for Federal Form 2210 and CA FTB Form 5805 for guidance on the specific income limits that may apply to you.