Capital gains from sale of second house - under payment penalty?

[frugalnacho]

I sold my second house this year and have some substantial capital gains. 

Here is a thread I made previously:  https://forum.mrmoneymustache.com/taxes/selling-my-second-house-tax-implications-and-questions/

I'll have about $16k in taxable income from my W2 after all my deductions are applied.  I'll have about $67k in long term capital gains from the proceeds of the house on top of that.  I am MFJ so the vast majority of those capital gains fall into the 0% bracket, but I'll have about $7.7k into the next tax bracket (15% for LTCG) giving me a federal tax bill of around $1.1k (in addition to my "regular" income).  Michigan doesn't do LTCG rates so I'll just have to include it all as income, which works out to about an additional $2.9k in michigan taxes.

So now the bottom line is this:  I didn't have any federal or michigan withholding on the proceeds from the sale, so I definitely under paid both this year. 

My federal tax last year was $0 - I believe this gives me a free pass from the underpayment penalty this year.  Is this correct?

My michigan tax last year was around $1300.  I'm not aware of any provisions that waive the under payment penalty.  I always contribute the max to IRAs and end up getting a large refund from michigan, but the extra $2.9k I owe is going to tip the equation the other way and I'll owe michigan a check this year.

Is michigan going to ding me for an underpayment penalty?  Will they give an exception due to the circumstances?  Should I just preemptively send a check in?  I have all the money set aside in a money market account for when tax time comes so it won't be a big deal to just make an estimated payment to avoid the penalty.

[seattlecyclone]

My federal tax last year was $0 - I believe this gives me a free pass from the underpayment penalty this year.  Is this correct?

Federally, yes. There are a few "safe harbors" for the underpayment penalty, one of which is paying at least 100% of last year's taxes on time through quarterly payments or payroll withholding. When last year's tax was $0, this is pretty easy. :-)

No idea about your state rules. The federal government considers all payroll withholding to be paid on time for estimated tax purposes even if it is heavily weighted toward the end of the year. Michigan may have a similar rule. If so, you may wish to bump up your state tax withholding from your paycheck for the rest of the year. If not, just send them a check. Likely the sooner you do this, the better it will be.

[frugalnacho]

My federal tax last year was $0 - I believe this gives me a free pass from the underpayment penalty this year.  Is this correct?

Federally, yes. There are a few "safe harbors" for the underpayment penalty, one of which is paying at least 100% of last year's taxes on time through quarterly payments or payroll withholding. When last year's tax was $0, this is pretty easy. :-)

No idea about your state rules. The federal government considers all payroll withholding to be paid on time for estimated tax purposes even if it is heavily weighted toward the end of the year. Michigan may have a similar rule. If so, you may wish to bump up your state tax withholding from your paycheck for the rest of the year. If not, just send them a check. Likely the sooner you do this, the better it will be.

I checked with the state of michigan website and they have a page to make estimated payments electronically, so I made a payment of $2,900.  I will probably end up getting half of that back.

[MDM]

Michigan's safe harbors are similar to the federal ones.  Same percentages; 1/2 the size ($500 vs $1000) on the absolute amount: 2016 MI-1040ES, Michigan Estimated Income Tax for Individuals - 2016_MI-1040ES_Web_509013_7.pdf.