Estimated Income tax for gains on real estate sale proceeds

[curiousgeorge]

NJ resident sold a NYC co-op apartment that used to be a second home. Lawyer did a NYS IT-2664 to pay Nonresident Estimated Income Tax from the proceeds (gain). Lawyer did not ask seller for cost basis information. Lawyer was also the one who did closing when apartment was purchased a few years ago – so he knew the purchase price.

He calculated the estimated tax based on the purchase price plus his guesstimate of improvements – which was 25% lower than the actual cost of improvements that was actually made for the apartment.

Also not added to the cost basis are (1) seller’s share of capital assessments for the building improvements, and (2) seller’s share of the building’s mortgage amortization.

Obviously, the correct higher cost basis will be on the actual 2014 returns (Federal, NJ and NY) and the amounts will not match the lower cost basis on NYS IT-2664. Will this be a problem? If a problem – how to resolve it?  (Note:  After the higher cost basis, still a big taxable capital gain.)

Thank you very much.

[mwcpa]

The it 2664 is to make an "estimated" tax payment.  It is not an actual tax calculation.  New York and other states want money up front so the non resident actually files a return to claim a refund.  Smart thinking by the state.

in California the state requires withholding of 7% on payments to non resident independent Contractors working in that state.  The 7% is on the gross.  Once I had a client whose withholding was great than his profit allocable to California.  Of course things could have been done to mitigate the tax, but I found out after the transaction took place.

[curiousgeorge]

Thanks MW.

I understand what you said to mean that the lower cost basis on NYS IT-2664 does not really create a problem (as in audit) when the actual return is made to claim a refund because the cost basis will be much higher than on IT-2664. Do I understand correctly?

Your client in California - was he able to get a refund?

Thanks again! 

[mwcpa]

Correct... An estimate is an estimate.. The actual tax filing is not supposed to be estimated.

estimates rarely equal reality, ever been involved with any construction project?  The job never comes in at the estimate (in time or money).  There are too many variables with an estimate and one change order can through it off.

The California client was a partnership and if the partners properly filed their personal tax filings a refund could have been available to them.

[curiousgeorge]

Thanks again MW!

... and have a great holiday weekend!