Q&A: Future home sale affects Medicare

Dear Liz: I am 65 and have a very low income but will be selling my home of 25 years soon to downsize. How will the one-time capital gains affect my Medicare payments, which are currently at the minimum? Can I share with the Social Security office that this is a one-time event and that the following years will all have a very low income stream? Will they adjust my payments up one year and back down the next?

Answer: You can exempt up to $250,000 per person of home sale profit from capital gains, so only profit above that amount would be added into your modified adjusted gross income to determine your Medicare premiums. There’s a two-year lag, so if you sell your home this year and report it on the tax return that’s due next year, your premiums will increase the following year (in your case, in 2023).

As noted in a previous column, you can appeal the increase if your income was affected by certain life-changing events including marriage, divorce, death of a spouse, work stoppage or reduction, loss of income-producing property (because of a disaster or other event beyond your control), loss of pension income or an employer settlement payment because of an employer bankruptcy or reorganization. If you don’t qualify to appeal, the increase would only be for one year and your premiums would return to normal afterward.

Another option is to structure the deal so you receive the payout over time, rather than all at once, but consult an accountant or financial planner before proceeding.

Q&A: A house in one state, a spouse in another. What about taxes?

Dear Liz: My husband recently took a dream job in a different state. We are renting a place there, and it is his primary residence. We own our home in the “original” state, where I live and work. We intend to keep our home for another three to four years. How will this impact our taxes? We are married, filing jointly and our income is straightforward W-2. Will we need to file as residents in both states? I know most states will credit taxes already paid on income earned in another state, but which is our “primary” residence? I may base permanently in the new state because I can work remotely. I am confused about filing jointly when each spouse lives in a different state.

Answer: Please talk to an accountant about the best way to handle your returns. In some cases, spouses who live in different states can submit their federal tax returns as “married filing jointly” while filing their respective state returns as “married filing separately.” Other times, there may be tax advantages to filing jointly in one state, or the nonresident spouse will be required to file.

If you are required to submit a return to the nonresident state, your accountant can tell you whether you qualify for credits. Alternatively, there may be a reciprocal tax agreement between states that allows nonresidents to avoid taxes if they follow certain rules.

But you’ll want to be particularly careful if you currently live in a high-tax state with a reputation for aggressive residency audits such as California, New York and Illinois.

A state auditor may decide that your husband’s move is temporary and his income is thus subject to your state’s taxes. It would be up to him to prove otherwise, and that may not be as easy as changing his voter registration. A tax pro can help guide him, and later you, on the best way to establish residency.

Thursday’s need-to-know money news

Today’s top story: 4 financial experts who could steer your wrong. Also in the news; More Americans are saving than ever before, though in unequal amounts, do’s and don’ts for planning your travel on points this year, and how to make debt less costly when you need it in a crisis.

4 Financial ‘Experts’ Who Could Steer You Wrong
Be cautious about taking advice from sources who care more about their profits than your financial health.

More Americans Are Saving Than Ever Before, Though in Unequal Amounts

Ask a Points Nerd: Should I Book Award Travel for 2021?
Here are some do’s and don’ts for planning your travel on points this year.

How to Make Debt Less Costly When You Need It in a Crisis
Americans have taken on more debt as the pandemic brought widespread job and income losses, according to a survey.

4 financial ‘experts’ who could steer you wrong

None of us knows everything we need to know about money, so we may turn to experts for help. But some money professionals who offer advice are not qualified to do so — nor are they required to put our interests ahead of theirs.

In my latest for the Associated Press, be cautious when accepting advice from certain sources.

Wednesday’s need-to-know money news

Today’s top story: How to decide if loyalty to a hotel or airline is worth it in 2021. Also in the news: The timeline remains unclear on extending payment pause to student loan borrowers, how one late student loan payment affects you, and what questions to ask before buying homeowners insurance.

How to Decide If Loyalty to a Hotel or Airline Is Worth It in 2021
In this uncertain year, keep these factors in mind when deciding whether to change your travel loyalty memberships.

Biden Will Extend Payment Pause for Student Loan Borrowers. Yet Timeline Remains Unclear

Buying homeowners insurance? Ask these 4 questions first
Your insurance policy is your safety net in case of a disaster, so you’ll want to ask a few important questions before forking over your premium

How One Late Student Loan Payment Affects You
Find out the truth.

Tuesday’s need-to-know money news

Today’s top story: Simplifying and saving during the pandemic. Also in the news: Hoping for student loan forgiveness won’t pay the bills, alternatives to Simple, and how to apply for rent assistance.

A Pandemic Shift in Finances: Simplifying and Saving
People are reassessing their priorities, finding ways to simplify life and put more money aside.

Hoping for Student Loan Forgiveness Won’t Pay the Bills
Even with payments currently paused, borrowers need a strategy that doesn’t count on forgiveness for federal loans.

Losing Your Simple Account? Some Alternatives Worth a Look
Fans of the soon-to-close app might like options including Radius Bank, Varo and Personal Capital, among others.

How to Apply for Emergency Rent Assistance
How to take advantage of the newly-released plan.

Monday’s need-to-know money news

Today’s top story: Jump start your credit with a free credit score. Also in the news: A new episode of the Smart Money podcast on COVID scams and small money goals, why you shouldn’t bank on student loan forgiveness, and how to apply for the second round of PPP loans for small businesses.

Jump-Start Your Credit: Begin With a Free Credit Score

Smart Money Podcast: COVID Scams and Small Goals

Why You Shouldn’t Bank on Student Loan Forgiveness

How to apply for the second round of PPP loans for small businesses
Who qualifies, how much you can get, and which loans will be forgiven

Q&A: For Social Security benefits, playing a waiting game really pays off

Dear Liz: My wife and I are both 63. She recently applied for Social Security. I will apply for mine when I am 70, at which time she will apply for a spousal payment, which will be half of mine. Last night as I was in bed I thought, “What if I die before 70?” Can she still wait until what would be my 70th year to collect my maximum benefit?

Answer: Your wife will get a larger survivor benefit because you delayed. If you die after she reaches 66 years and two months, however, she won’t get a larger check by waiting.

Social Security rules can be mind-numbingly complicated, and they’re different for different types of benefits, so this will take some explaining.

The three types of benefits that matter for this discussion are retirement benefits, which are based on your own earnings record; spousal benefits, which are based on a spouse’s earnings record while both partners are alive; and survivor benefits, which are based on a spouse’s earnings record after his or her death.

These benefits may be reduced if you start them before your “full retirement age,” which is different for survivor benefits than for retirement and spousal benefits, said William Meyer, founder of Social Security Solutions, a claiming-strategies site.

If your wife was born in 1957, then her full retirement age for retirement or spousal benefits is 66 years and 6 months. For survivor benefits, it’s 66 years and 2 months.

The full retirement age for retirement and spousal benefits is 66 for those born between 1943 and 1954. People born between 1955 and 1959 have full retirement ages ranging from 66 and 2 months to 66 and 10 months. Those born in 1960 and later have a full retirement age for retirement benefits of 67.

With survivor benefits, the schedule is pushed back two years. Survivors born between 1945 and 1956 have a full retirement age of 66. Survivors born from 1957 to 1961 have full retirement ages ranging from 66 and 2 months to 66 and 10 months. Survivors born in 1962 and later have full retirement ages of 67.

The reason you’re waiting to start retirement benefits until 70 is probably because you know your benefit will increase 8% for each year you delay between your own full retirement age and 70, when retirement benefits max out. The 8% per year increases are called delayed retirement credits. As you likely know, delaying is particularly important for the higher earner in a couple because that benefit determines what the survivor gets.

If you start retirement benefits before your full retirement age, your wife’s survivor benefit will be based on what you would have gotten at your full retirement age. If you delay your retirement benefits beyond your full retirement age, your wife’s survivor benefit will reflect any delayed retirement credits you have earned.

Your retirement benefit doesn’t earn delayed retirement credits after you’re dead, however. And your wife won’t earn delayed retirement credits on her survivor benefit. Once she reaches her full retirement age for survivor benefits, there’s no point in further delaying her switch from her retirement benefit to her survivor benefit.

Delayed retirement credits also don’t apply to spousal benefits. Her maximum spousal benefit would be half of your benefit amount as of your full retirement age. Because she started her own benefit early, however, her spousal benefit would be reduced.

The penalties for starting early are significant enough that it’s usually best to wait, and your wife may still have a “do over” option. If it’s been less than 12 months since she applied for benefits, she can repay any benefits she received and withdraw her application. That will undo her previous claiming decision and allow her benefit to keep growing. The claiming calculators and experts at Social Security Solutions and Maximize My Social Security can help you determine if that might be the best course.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.

Friday’s need-to-know money news

Today’s top story: How to nail a no-spend month. Also in the news: New credit card benefits we’d love to see for 2021, the popular online banking service Simple is shutting down, and TurboTax customers will still get their stimulus payment.

How to Nail a No-Spend Month
Recover from the holidays.

New Credit Card Benefits We’d Love to See for 2021
The pandemic forced credit card issuers to revamp their travel card benefits. Why stop there?

Simple, the Popular Banking Service, Is Shutting Down
What to do if you have an account.

TurboTax Customers Will Still Get Their Stimulus Payments
Understanding the glitch.

Thursday’s need-to-know money news

Today’s top story: Start 2021 off strong with these smart money moves. Also in the news: What COVID-related credit card help is available in 2021, how businesses can apply for a second PPP loan, and Medicare Advantage open enrollment begins.

Start 2021 Off Strong With These Smart Money Moves
Money resolutions can include filing taxes early, reviewing spending and saving more for retirement.

What COVID-Related Credit Card Help Is Available in 2021?
Most card issuers continue to offer help to those affected by the pandemic — but it’s up to you to ask for it.

How Businesses Can Apply for a Second PPP Loan
Certain hard-hit businesses are eligible to receive a second PPP loan under the new COVID relief package.

Medicare Advantage Open Enrollment Lets You Switch Plans
The annual period runs from Jan. 1 to March 31.