Median sales prices of houses arenear record highsin the United States, and homeowners whose properties have appreciated greatly in value may be tempted to sell. A significant windfall from a home sale can be used to fund retirement or other needs, but will selling your home affect your Medicare?
Medicare eligibility is not based on income, so profiting from a home sale does not make you ineligible. However, the proceeds of a home sale can affect your income, which could mean paying more for Medicare premiums. For dual-eligible beneficiaries, a home sale could also affect Medicaid eligibility. Read on for details about how selling your home will affect your Medicare.
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Understanding Income Thresholds for Medicare Premiums
Medicare charges an income-related monthly adjustment amount (IRMAA) to high-income beneficiaries. It determines who needs to pay an IRMAA based on their modified adjusted gross income (MAGI).
MAGI starts with your adjusted gross income, as calculated on your tax return. Then, Medicare adds certain untaxed income, including tax-exempt interest and untaxed foreign income. The MAGI threshold for being considered a high-earning beneficiary changes each year.
Each year, Medicare calculates IRMAA premium surcharges based on beneficiaries’ tax information from two years earlier. In 2024, IRMAA only applies to beneficiaries who reported an income above $103,000 on their individual return in 2022. For married beneficiaries who filed jointly, the threshold is $206,000.
Beneficiaries’ income levels affect the cost of some Medicare parts but not all. For dual-eligible beneficiaries, MAGI is also important for continued Medicaid eligibility.
Part A
Most people with Medicare do not pay a premium for their Part A coverage, even if they have a high income. That’s typically because they or their spouse already contributed enough through Medicare taxes while working.
People who are not eligible for premium-free Part A can buy it, and the premiums are the same regardless of income. Depending on your work history, you pay either $278 or $505 per month in 2024.
Part B
Most people pay the standard premium for Part B, which changes yearly. For 2024, it’s $174.70 per month. However, some people need to pay a higher premium because of their income.
For example, here’s what Part B premiums look like in 2024 for a married couple who reported the following yearly incomes on their 2022 joint tax return:
- $206,001–$258,000: $244.60
- $258,001–$322,000: $349.40
- $322,001–$386,000: $454.20
- $386,001–$750,000: $559.00
- $750,001 or above: $594.00
For beneficiaries who file an individual tax return, the threshold for higher premiums starts at a yearly income of $103,001 (half of the above amounts).
Medicaid
Medicaid programs are run at the state level, so income thresholds and the types of income counted toward Medicaid coverage vary depending on where you live.
The federal government sets income limits for the Medicare Savings Program. Income thresholdschange on April 1 each year. Until the new limits are published, the followingmonthly income limitsare in effect:
- Qualified Medicare Beneficiary Program:$1,235 for individuals; $1,663 for married couples
- Specified Low-Income Medicare Beneficiary Program:$1,478 for individuals; $1,992 for married couples
- Qualifying Individual Program:$1,660 for individuals; $2,239 for married couples
- Qualified Disabled & Working Individual Program:$4,945 for individuals; $6,659 for married couples
What Counts Toward Your Income?
Many sources of income count toward your MAGI and can affect your Medicare premiums and Medicaid eligibility. Some common income sources include:
- Employment income:Employment income includes money earned from wages, salaries, bonuses, commissions, and tips, as well as self-employment income.
- Investment income:Interest and dividends are common examples.
- Capital gains: The profit earned when you sell an asset, such as stocks, bonds, or your house.
- Social Security income:Social Security retirement and disability benefits are counted in MAGI.
- Retirement income:Income from pensions and distributions from investments like traditional IRAs and traditional 401(k)s count as income.
- Other income:Money from various sources, including lottery winnings, canceled debts, and alimony payments, also counts toward MAGI.
The IRS rules regarding what counts as income are complex. For help understanding the sources of money that count toward MAGI, consult with a tax professional.
How Home Sales Impact Income
When you sell an asset, like a house, the profits are known as capital gains. Capital gains are a type of income, so they may affect how much you pay for Medicare coverage.
Fortunately, theIRS allowshomeowners who sell their primary residence to exclude up to $250,000 of the gain from their income ($500,000 if married filing jointly). Exempt capital gains do not count toward MAGI income, so they do not affect Medicare premiums.
When and How to Report Income Changes
Beneficiaries are not required to report income changes, including profits from the sale of a home, to Medicare. Medicare gets tax information from the IRS to calculate income-related monthly adjustment amounts.
Beneficiaries paying an IRMAA can request a waiver if their income decreases after a life-changing event, such as a divorce or job loss. To report an income reduction, contact Social Security in person, by phone, mail, or fax.
Another Consideration: Moving
Besides potential income impacts, moving to a new home may also affect your Medicare coverage, depending on how you get your benefits.
People with Original Medicare have coverage anywhere in the United States and its territories. Medicare Supplement (Medigap), which complements Original Medicare, generally works the same way unless it’s a Medicare SELECT plan.
Medicare Advantage and Part D drug plans have service areas, so beneficiaries who move to a new address may need to enroll in a new plan. Switching plans affects your Medicare coverage because costs, benefits, and provider networks vary from plan to plan.
Putting It All Together
Income and assets are not a factor in Medicare eligibility, so selling a home at a profit does not make you ineligible for Medicare. However, the gains from a home sale may increase your taxable income, meaning you need to pay IRMAA surcharges.
The impacts on Medicaid coverage are more complicated since state rules vary, so if you’re dual-eligible, consider seeking professional advice before listing your home.
Frequently Asked Questions
How does a reverse mortgage impact Medicare premiums and benefits?
Reverse mortgages allow homeowners to borrow from their home equity to receive a lump sum or periodic cash payments. The funds do not count as income since a reverse mortgage is a loan. Medicare does not consider reverse mortgage funds when setting IRMAAs.
However, a reverse mortgage may affect a dual-eligible beneficiary’s Medicaid coverage. While the funds are not considered income, any portion still available in the month after it was received is considered a resource, even though the money is borrowed.
Do other assets or property — like vacation homes — have similar impacts on Medicare?
Profits from the sale of assets or properties create capital gains, which are considered income for Medicare purposes. However, the sale of a second home or vacation home may qualify for the primary residence capital gains exclusion if it meets certain ownership and use tests.
Selling an asset or property at a loss can also affect your Medicare premiums. Capital losses can reduce your MAGI, which may push you into a lower income bracket for IRMAA.
How does Medicare treat joint property sales, for instance, in cases of divorce?
Medicare gets each beneficiary’s tax information from the IRS, including any gains from joint property sales. It calculates each spouse’s IRMAA requirement based on the available tax information.
However, Medicare understands that a divorce is a life-changing event affecting a beneficiary’s ability to afford IRMAA payments. Beneficiaries whose income has decreased after a divorce can request a redetermination of their IRMAA.
If I decide to rent out my home instead of selling, how does that rental income affect my Medicare premiums?
The net rental income counts toward your MAGI if you turn your main home into a rental property. Net rental income is the total rent your tenant pays minus certain expenses like insurance, legal fees, repairs, and utilities. The additional income can potentially push you into a higher IRMAA bracket, increasing your Medicare premiums.
What happens if I sell my home and then buy a new one in the same year?
Current IRS rules do not allow homeowners to avoid capital gains by buying a new primary residence in the same year. However, the home sale exclusion does allow eligible homeowners to exclude some of the profit from a home sale from their incomes. The exclusion helps Medicare beneficiaries avoid increased IRMAA payments due to a home sale.
Moving homes may or may not affect a dual-eligible beneficiary’s Medicaid coverage. Some state Medicaid programs temporarily exempt home sale proceeds from the asset limit if the beneficiary intends to buy another home.
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