Q. I am in my 70’s and receiving Social Security and Medicare. I am considering selling my home and moving into a Senior Living facility. I heard that the sale might affect my Medicare premium and Social Security benefits. Can you shed any light on this?
A. I believe so, and you heard correctly if you anticipate capital gain from the sale. Your Medicare premiums now adjust based upon your income, so if your income goes up, so does your Medicare premium. Medicare calls this the “Income-Related Monthly Adjustment Amount” and often refers to this by the acronym “IRMAA”. The relevant income is called Modified Gross Income (“MAGI”) on your tax return, and includes capital gain. As you may know, capital gain on the sale of your home is the difference between your net sales price and the following: your original cost plus improvements, less the$250K per person exemption (assuming that you qualify for the exemption by having lived in the home at least 2 of the 5 years before sale). By way of example: If you purchased your home many years ago for, say, $125K, put in $200K in improvements, and your net proceeds from sale are $1.4 million, here is a rough estimate of your capital gain:
$1,400,000 Net sales price after selling expenses
< 125,000 Original Cost
< 200,000 Improvements
< 250,000 Tax Exemption
$ 825,000 Capital Gain
That gain would be included in your MAGI and reported on your tax return. Two years later, the Medicare folks would use that increased income and adjust your Medicare premium upward for one year. See the chart below. Since your Medicare premiums are deducted from your Social Security benefit, this adjustment would result in your receiving a reduced Social Security benefit each month.
But, it would likely only be for one year, starting two years after the year in which you report the gain on your tax return, and should therefor adjust back to your “true” income every year thereafter. Here is a chart showing how MAGI income affects the Medicare Part B and Part D premiums for a single individual in 2024, and for married persons filing a joint return.
FOR SINGLE PERSONS
MAGI (in 2022) Part B Premium Part D Premium
$103K- $129K $244.60 $12.90 + Plan Premium
$129K–$161K $349.40 $33.30 + Plan Premium
$161K–193K $454.20 $53.80 + Plan Premium
$193K-$500K $559.00 $74.20 + Plan Premium
$500K or more $594.00 $81.00 + Plan Premium
FOR MARRIED COUPLES
MAGI (in 2022) Part B Premium Part D Premium
$206K – $258K $244.60 $12.90 + Plan Premium
$258K– $322K $349.40 $33.30 + Plan Premium
$322K– $386K $454.20 $53.80 + Plan Premium
$386K–$750K $559.00 $74.20 + Plan Premium
$750K or more $594.00 $81.00 + Plan Premium
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Also note that switching from original Medicare to a Medicare Advantage Plan may lower your part B Premium, and therefore what you pay each month due to IRMAA, but switching means giving up certain benefits of Original Medicare, so consider this trade-off carefully before making the switch. Further, if you believe that Medicare has made a mistake in adjusting your premium, you can appeal based upon a significant Life Changing Event (such as death of a spouse). Search the social security website (SSA.Gov) for Form SSA-44 for more detail.
Before you list your home for sale, you might also review this issue with a financial planner to see whether other options may present in your situation. Good wishes.