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.
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