Estimated Tax on Capital Gains

Your required annual payment is the smaller of 90% of this year's tax or 100% of last year's (110% above $150,000 of prior-year AGI). In a gain year, this year's tax is the big number, so the prior-year option is almost always the controlling one. It is also fixed: you knew it the day you filed your 2025 return.

That makes the planning question simple. Add up your 2026 withholding and estimates so far, compare them with 100% or 110% of 2025 total tax, and close any gap before the year ends. The full mechanics, including what "total tax" means, are in the estimated tax payments guide. To test your own numbers, use the estimated tax penalty calculator.

Add state tax, which most states apply to capital gains at ordinary rates. For a fuller rate walkthrough, see 2026 capital gains tax brackets, or run your sale through the capital gains tax calculator and the NIIT calculator.

If you are not relying on the prior-year safe harbor, the annualized income installment method lets the gain show up only in the installment that follows it:

Without Schedule AI, the IRS assumes the year's tax accrued evenly, so a fall gain looks like you underpaid in April, June and September. The annualized method only helps if you file Form 2210 with Schedule AI attached. For a sale between now and December 31, the Q4 estimated tax payment guide shows how to size the January 15 payment.

Withholding is treated as paid in four equal parts on the four due dates, no matter when it actually happens. So the couple in the example can have $16,000 of extra federal tax withheld from December paychecks and every quarter of 2026 is covered retroactively. A $16,000 estimated payment on January 15 would fix only the last quarter.

No paycheck? A retiree can take an IRA distribution with withholding, and an S-corp owner can run extra withholding through a year-end payroll. Both have tax side effects, so model them first.

• Selling your home. Only gain above the Section 121 exclusion, up to $250,000 or $500,000 for most joint filers, counts. Depreciation from rental or home office use is generally taxable anyway.
• Selling a rental. Expect a mix of long-term gain and unrecaptured Section 1250 gain at up to 25%, plus NIIT for most investors. See the 1031 exchange guide if you plan to reinvest; a fully deferred exchange needs no estimate, but boot does.
• Seller financing. Under an installment sale, gain is taxed as payments arrive, so estimates follow the payment schedule, not the closing date. See installment sale taxes.
• Selling a business. Purchase price allocation can turn part of the price into ordinary income. That changes the tax, and therefore the estimate.

Here is what most sellers miss. The prior-year safe harbor for 2027 is based on 2026 total tax, gain included. In the example, 110% of about $151,200 of 2026 tax is roughly $166,300, or about $41,600 a quarter, for a year that may look like an ordinary W-2 year.

The fix is to switch methods for 2027: pay 90% of a realistic 2027 projection instead. If their normal-year tax is around $55,000, 90% is about $49,500 for the year, roughly $12,400 a quarter. The trade-off is that a projection has to be maintained, because a second big event in 2027 would make the 90% target move.

States set their own estimated tax rules, and most tax gains as ordinary income. Some also require withholding at closing on certain real estate sales, which counts toward that state's tax. A state safe harbor may use different percentages or income thresholds than the federal rule, so check each state separately; California, for one, limits the prior-year safe harbor at high incomes. See the California estimated tax guide.

Year-end losses can shrink the gain before the estimate is due. See tax-loss harvesting for how realized losses offset gains.