If you’re considering selling your home after the age of 63, you might want to think twice before finalizing the deal. Many retirees and seniors don’t realize that selling their homes can have significant consequences on their Medicare premiums and overall retirement finances.
Understanding Medicare’s Income-Related Monthly Adjustment Amount (IRMAA)
When you sell your home, the profit from the sale can temporarily increase your income, which may push you into a higher Medicare premium bracket under the Income-Related Monthly Adjustment Amount (IRMAA). This means you could be paying significantly more for Medicare Part B and Part D for at least one year following the sale.
How Home Sales Impact Your Income for Medicare Purposes
Medicare calculates your premiums based on your modified adjusted gross income (MAGI) from two years prior. If your home sale results in a substantial gain, even if it’s a one-time event, it may lead to unexpected increases in your monthly Medicare costs.
Example: How a Home Sale Can Increase Medicare Costs
Sarah, a 65-year-old retiree in The Villages, Florida, with an annual income of $80,000, which is around the median income for individuals working at age 65 in Florida, sold her home for a $300,000 profit. Since she is single, she qualified for the $250,000 capital gains exemption, but the remaining $50,000 was added to her income for the year. This pushed her above the IRMAA threshold, increasing her Medicare Part B premiums from $174.70 to $244.60 per month for the following year, costing her an extra $839 in Medicare costs. Had she structured her sale differently, she could have avoided this expense.
Medicare Costs and Premium Adjustments
Medicare costs can increase based on your MAGI. Higher-income retirees may be subject to increased premiums under IRMAA rules. Understanding these costs and how they are calculated is crucial for retirees in The Villages and throughout Florida.
How Long Will You Pay Higher IRMAA Costs?
IRMAA adjustments are based on your income from two years prior, meaning that a high-income year due to a home sale could impact your Medicare premiums for a full calendar year. However, after that year, if your income returns to normal levels, your premiums should decrease accordingly.
If your income drops back below the IRMAA threshold, your Medicare costs will return to standard rates after one full year of increased premiums. However, you can file a Medicare IRMAA Life-Changing Event Appeal if the sale of your home was a one-time event, potentially reducing your IRMAA surcharge sooner.
Tips to Minimize the Impact on Medicare:
- Understand Capital Gains Exemptions – If you have lived in your home for at least two of the last five years, you may be eligible for capital gains tax exclusions ($250,000 for individuals, $500,000 for couples). Proper planning can help reduce taxable income.
- Plan Your Sale Strategically – Consider selling in a year when your income is lower to avoid bumping into a higher IRMAA bracket.
- Utilize Trusts or Other Financial Tools – Consulting with a financial advisor can help structure the sale to minimize Medicare cost increases.
- File an Appeal – If your increased income is due to a one-time event, you may be able to file a reconsideration request with Medicare to adjust your IRMAA charges sooner.
Get Local Medicare Guidance
If you’re in The Villages or the surrounding areas, Preferred Insurance is here to help you navigate Medicare complexities. Our team can guide you in making informed decisions to protect your retirement finances. Contact us today for a personalized Medicare review!
