The short answer
Usually yes, unless your withholding and earlier payments already meet a safe harbor. The underpayment penalty is avoided if what you paid on time covers 90% of this year's tax or 100% of last year's tax, rising to 110% of last year's if your prior-year AGI was over $150,000. Because the prior-year test ignores this year's sale, the cheapest route is often to top up to that figure and pay the rest in April. A fully deferred 1031 exchange creates no gain to estimate; boot does.
At a glance
| Who must pay | Expected balance due of $1,000 or more after withholding and credits |
|---|---|
| Safe harbors | 90% of 2026 tax, or 100% of 2025 tax; 110% if 2025 AGI topped $150,000 |
| 2026 due dates | April 15, June 15 and September 15, 2026, and January 15, 2027 |
| Late-sale relief | Annualized income installment method on Form 2210, Schedule AI |
| Penalty rate | The IRS underpayment rate, 7% for the third and fourth quarters of 2026 |
| Withholding | Treated as paid evenly through the year unless you elect actual dates |
| California | 30%, 40%, 0% and 30% installments; prior-year harbor lost at $1,000,000 AGI |
| Full 1031 | No recognized gain, so nothing from the sale to estimate |
You owe quarterly payments when the year's balance will reach $1,000 and no safe harbor is met
The test in Publication 505 has two parts. You expect to owe at least $1,000 for 2026 after subtracting withholding and credits, and your withholding and credits will be less than the smaller of 90% of the tax on your 2026 return or 100% of the tax on your 2025 return.
Section 6654(d)(1)(C) raises the prior-year figure to 110% when the prior year's AGI exceeded $150,000, or $75,000 for a married person filing separately. A seller of a rental often sits above that line already.
The prior-year harbor is the useful one after a sale. It is a fixed number you know today, it does not grow with the gain, and meeting it removes the penalty even if you owe a large balance in April.
Each payment is due by its own date, and the penalty is interest on each shortfall
For 2026 the four payments cover income earned January 1 to March 31, April 1 to May 31, June 1 to August 31 and September 1 to December 31, due April 15, June 15 and September 15, 2026 and January 15, 2027. Publication 505 lets you skip the January payment if you file your 2026 return by January 31, 2027 and pay everything owed.
Under section 6654(d)(1)(A) each required installment is 25% of the required annual payment, and the Instructions for Form 2210 figure the penalty separately for each due date. The charge is the underpayment rate under section 6621, which the IRS lists as 7% for July through December 2026, running only until the shortfall is paid.
Two features help a seller who closes late in the year. Section 6654(d)(2) allows the annualized income installment method on Schedule AI, which applies 22.5%, 45%, 67.5% and 90% to income actually earned by each cut-off, so a November gain does not create a penalty for April. And section 6654(g) treats wage withholding as paid in equal parts on each due date, so extra withholding in December can cover earlier quarters.
Worked example: a July sale against a 110% safe harbor
Hypothetical, round numbers, married filing jointly; run your own numbers with your CPA. The couple's 2025 tax was $40,000 on AGI of $220,000, so their safe harbor is 110%, or $44,000. Their 2026 wage withholding will be $42,000, and in July 2026 they sell a rental at a gain that adds about $60,000 of federal tax, for a 2026 total near $102,000.
The required annual payment is the smaller of 90% of $102,000, which is $91,800, and $44,000. Each installment is $11,000 against $10,500 of withholding deemed paid per quarter, a $500 shortfall each time.
Adding $2,000 of withholding before year-end, which is spread back across all four dates, clears every shortfall. The remaining balance of about $58,000 is due April 15, 2027 with no estimated tax penalty, though interest and late-payment rules apply if that is missed.
State estimates run on their own schedule, and California front-loads them
State income taxes have their own estimated payment rules. The California Franchise Tax Board requires 30% of the year's estimate by April 15, 40% by June 15, nothing on September 15 and 30% by January 15, 2027.
California also limits the prior-year shortcut. Above $150,000 of prior-year California AGI the harbor is 110% of last year's tax, and when the current year's California AGI is $1,000,000 or more the estimate must be based on 90% of the current year's tax, which a large sale can trigger by itself.
Some states withhold at the closing table on nonresident or other sellers, and that amount is credited against the state tax for the year. Whether a state withholds when you are exchanging is covered in state withholding at closing.
An exchange removes the payment, unless boot or a year-end straddle puts some of it back
A completed exchange with no cash or debt relief recognizes no gain, so the sale adds nothing to 2026 tax and nothing to estimate. Boot does: cash left with the intermediary, or a smaller replacement mortgage, is recognized in the year of the sale, as explained in leftover cash after a 1031 exchange.
A sale late in the year can move that boot. Reg. section 1.1031(k)-1(j)(2) treats funds held by a qualified intermediary as not yet received for installment reporting, so boot paid out in 2027 can be reported, and estimated, in 2027. Straddling the tax year has its own page.
If the exchange might fail, plan the safe harbor anyway. A Delaware Statutory Trust interest named as a backup on your identification list is one way to complete the exchange when a direct purchase falls through.
Related questions
I already file quarterly for my rental income. Do I just increase the next payment?
Yes, if the next payment plus earlier ones will reach your safe harbor. Under the regular method an early shortfall still draws a penalty for its own quarter, so if the sale closed after a due date, Schedule AI is what keeps the earlier installments clean.
Can I just pay everything in April and accept the penalty?
You can. The penalty is interest at the underpayment rate, 7% annualized for the second half of 2026, on each shortfall for the time it is outstanding, and the IRS can figure it for you.
Is there a waiver?
Form 2210 allows a waiver request if the underpayment came from a casualty, disaster or other unusual circumstance, or if you retired after age 62 or became disabled in the current or prior year and the underpayment had reasonable cause.
Do I estimate the 3.8% net investment income tax too?
Yes. Publication 505 includes it in the tax that estimated payments cover, so the surtax on the sale belongs in the estimate. Whether a 1031 defers the NIIT is a separate question.
How does the gain change my bracket for the estimate?
The gain stacks above your wages, so your wages keep their rate and the gain is taxed at 0%, 15%, 20% or up to 25% for the depreciation slice. See whether the gain pushes your wages into a higher bracket.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- IRS, Publication 505 (2026), Tax Withholding and Estimated Tax
- 26 U.S.C. section 6654, failure to pay estimated income tax (Cornell LII)
- IRS, Instructions for Form 2210
- IRS, Quarterly interest rates
- California Franchise Tax Board, Estimated tax payments
- 26 CFR section 1.1031(k)-1(j)(2), coordination with section 453 (Cornell LII)