What form do I use to report rental property profit?

Q: If I sell an apartment I originally bought to live in, but have rented out for the last ten years, do I need to make an early payment to the IRS on tax owed on the profit? What Form do I use? --Paul, Boston

The following answer was provided by Mark Misselbeck, CPA, Levine Katz Nannis & Solomon PC, Needham.

A: Presuming you are concerned about penalties for under payment of tax, you need only be sure that between withholdings on wages and estimated tax payments you have paid in either an amount equal to your last year's tax (110%, if your income exceeds $ 150,000 on last year's return) or 90% of the current year's tax.

Presuming that you realized a healthy gain on the sale, you would want to pay in enough so that you hit the target of last year's tax. You may do this using Form 1040ES - call 1-800-829-3636 to request the forms and instructions.

MA has a similar rule, except it is either last year's tax or 80% of the current year's tax. You may want to pay MA before the end of the year, in order to claim the state tax deduction on the return in which you are reporting the gain. This strategy will not work if you fall into the Alternative Minimum Tax on your federal return for the year of sale (in essence, you would be "wasting" the state tax deduction in that situation).