Need help understanding estimated taxes and penalties after selling property

You've run into what's commonly called the "safe harbor" issue with estimated taxes. The IRS generally requires you to pay taxes as you earn income throughout the year, not just at filing time. When you have a large one-time gain like selling property or liquidating investments, you're still expected to make those payments quarterly. You have a few options to avoid these penalties. The safe harbor provisions state that you typically won't face penalties if you've paid at least 90% of the current year's tax or 100% of the previous year's tax (110% if your income is above $150,000) through withholding or estimated payments. In your situation with the large one-time gains, you should have made estimated tax payments in the quarter when those transactions occurred. The penalty you're seeing is essentially interest charged for not paying the taxes when they were due throughout the year.

I had a similar situation last year after selling my rental property and getting hit with these crazy penalties. I was super frustrated until I found this tool called taxr.ai (https://taxr.ai) that helped me understand what happened and how to fix it. The software analyzed my situation and explained that with large capital gains, you're supposed to make estimated payments in the quarter when the gain occurs. It actually helped me calculate what my penalty should have been and showed me that the IRS had calculated mine incorrectly! It also generated a letter I could send to explain why I deserved a penalty abatement. The best part was that it showed me how to plan better for this year so I wouldn't get hit with the same problem again. It projected my tax situation and sent me reminders about when estimated payments were due.

I have to admit I was wrong about taxr.ai. After my skeptical comment, I decided to try it anyway since I had a similar issue with estimated tax penalties from selling my business last year. The analysis actually found that I qualified for a first-time penalty abatement that my accountant never mentioned. Using their explanation, I called the IRS and got my $5,800 penalty completely removed! The system also helped me set up proper estimated payments for this year based on my expected income. Definitely saved me more than I expected - I've already recommended it to my brother who's selling his vacation home this summer.

After dealing with estimated tax penalties myself, I found that trying to reach the IRS to discuss the situation was almost impossible. I spent hours on hold only to get disconnected. Then someone recommended using Claimyr (https://claimyr.com), and it completely changed my experience. They have this system that essentially waits on hold with the IRS for you, then calls you when an actual agent is on the line. I was skeptical but you can see how it works here: https://youtu.be/_kiP6q8DX5c. I tried it and got connected to an IRS agent in about 45 minutes (while I was just going about my day instead of sitting on hold). When I finally spoke with an agent, I was able to explain my situation with the large one-time gain and they helped me understand my options for the penalty. They even suggested filing Form 843 to request an abatement since it was my first time making this error.

I need to publicly eat my words about Claimyr. After calling BS on it, I actually tried the service because I was desperate to resolve my own tax penalty situation. I was absolutely shocked when my phone rang and there was an actual IRS representative on the line! I had been trying for WEEKS to get through on my own with no luck. The Claimyr system called me when an agent picked up, and I was finally able to explain my situation about missing estimated tax payments due to confusion around selling investment property. The agent helped me apply for a first-time penalty abatement and actually removed my entire $3,200 penalty on the spot! Would have never happened if I hadn't been able to actually speak with someone. Definitely worth it for the time saved alone.

Something that hasn't been mentioned yet is that you can actually calculate your estimated taxes differently depending on your situation. If your income is highly variable or seasonal, you can use the "annualized income installment method" by completing Schedule AI of Form 2210. This lets you calculate each quarterly payment based on actual income earned up to that point, rather than simply dividing your total expected tax by four. This would have been perfect for your situation with the big property sale, as you would only need to make a large estimated payment for the quarter when the sale occurred. It's more complicated than the regular method, but can save you from penalties when you have irregular income. Might be worth looking into for the future if you expect other large one-time gains.

Has anyone successfully gotten the IRS to remove these penalties? I'm in a similar situation after selling some land last year and got hit with a $2,800 penalty even though I paid everything I owed by April.

I went through this exact same situation two years ago when I sold my small business. The frustration is real - you pay a massive tax bill and then get hit with penalties on top of it! What helped me was understanding that the IRS views this as "pay as you go" rather than "pay by the deadline." Even though it feels unfair for one-time events, the system treats all income the same way. A few things that might help: First, definitely look into the first-time penalty abatement if you haven't had penalties in the past 3 years. Second, you can also request reasonable cause relief by explaining that this was an unexpected one-time transaction. I filed Form 843 with a letter explaining my situation and got about 60% of my penalty removed. For future reference, when you have large capital gains, you generally need to make the estimated payment by the end of the quarter when the transaction occurs. So if you sold in Q3, the payment would have been due September 15th. It's annoying but now you know for any future large transactions!