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Previously, I posted on this board that I have sold my rental property in Florida. Yes, I know I must recapture depreciation, which will increase my ordinary income a great deal for 2007.

I suppose that depends on your definition of "a great deal." I agree that the depreciation recapture will increase your income for 2007, as will the capital gain on the sale of the property.

How can I compute if I am within the boundaries of "safe harbor" for 2007?

I assume you are talking about estimated tax penalties here. If not, the rest of the discussion is going to be off target.

There are a couple of safe harbors to avoid a penalty for underpaying your estimated taxes. The good news is that one of them is based on your prior year income and taxes. So it can be calculated exactly today. The bad news is that three of the 4 estimated tax payment dates are already history. So there might not be much you can do about it now.

You can pay 100% of your prior year tax liability through withholding and/or equal and on-time estimated tax payments. Increase that to 110% if your prior year AGI is too high (over $150k IIRC).

You can pay 90% of your current year tax liability through withholding and/or equal and on-time estimated tax payments.

You can pay all but $1000 of your current year tax liability through withholding and/or equal and on-time estimated tax payments.

Or you can make annualized installments of your current year tax based on the income recognized up to a cut off date before each estimated tax payments.

If the sale happened late in the year, the last option might be your best choice to avoid penalties. However, you would need to have had enough taxes withheld through the year to cover your tax liability from any other sources of income.

Normally, I'd suggest the first option, as it can be calculated to the penny as soon as your prior year taxes are done.

And, should I send a check for estimated taxes for the year 2007, or just wait until I file for an extension (need K-1 from SubS corp before filing) and send the excess money, or what I may think would be due, at that time?

You may need to do both. If you are behind on the minimum estimated tax payments necessary to avoid a penalty, you'll want to catch that up ASAP to minimize the penalty. However, it is quite possible that the minimum payments necessary to avoid penalties (or minimize them at this point) will be less than your ultimate tax liability. You need to have all of your taxes paid in by April 15. If you don't, there are more penalties for late payment. And interest will start running as well.

Oh, I also receive interest income from the sale, due to the fact that I financed the purchase via mortgage.

Sounds like an installment sale. That could impact how much tax you have to pay this year. And you may be able to defer some of the gain to future years when you collect the loan payments.

My AGI should be reduced a bit, due to delaying payment of my condo taxes from 2006 (paid in Jan. 2007), additional medical expenses, etc., along with the current year's taxes, as well as expenses on the Florida house, and the expenses of closing (i.e., taxes on Deed based on sales price), insurance, etc. until date of sale.

Just to keep the terms of art correct, your condo taxes (if that's your principal residence) and medical expenses don't affect your AGI. They affect your taxable income. The closing costs will get rolled up in the calculation of the gain on the sale of the property. So those will be in AGI - to the extent the income is included under the installment sale rules, anyway.

It sounds to me like an appointment with a tax pro is in order. You probably need to estimate your current year tax liability, your estimated tax payments needed to keep any potential penalties as small as possible, and for help with the installment sale. Things got a bit complex this year.

--Peter
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