Retirees often see selling their home as a significant financial opportunity, especially considering the substantial increase in home prices over the years. According to the Joint Center for Housing Studies (JCHS) at Harvard University, the median home equity for homeowners aged 65 and over was around $250,000 in 2022. This means that selling the family home can feel like hitting the jackpot.
However, there’s a hidden Medicare trap that could catch you off guard and lead to increased premiums if you’re not careful. The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge that can raise premiums for Medicare Part B and Part D if your income exceeds a certain threshold. In 2026, the threshold is set at $218,000 for married couples filing jointly and $109,000 for single individuals.
IRMAA is calculated based on your Modified Adjusted Gross Income (MAGI), which includes capital gains. So, if you sell your home at a significant profit, the capital gain could push your income above the IRMAA thresholds, resulting in higher premiums.
Depending on your MAGI, your monthly premiums could increase significantly, potentially reaching up to $689.90 under the highest IRMAA tier. It’s essential to plan ahead and understand how the sale of your home could impact your Medicare premiums.
One way to mitigate this issue is by carefully timing the sale of your property. If the home you’re selling is your primary residence and you’ve lived in it for at least two of the past five years, you may qualify for a capital gains exclusion. The IRS allows single individuals to exclude up to $250,000 of capital gains and married couples filing jointly up to $500,000.
Considering that older Americans typically spend about 25% of their total expenses on housing costs, downsizing could be a viable option to reduce financial burden. If you’re younger than 63 and thinking about downsizing, selling earlier can help you avoid IRMAA altogether. On the other hand, aging in place may be a better strategy for older individuals to avoid triggering higher premiums.
Consulting a financial advisor can help you navigate the complexities of selling your home and ensure that you don’t end up with a hefty tax bill. Platforms like Advisor.com can connect you with vetted experts who can provide tailored advice based on your financial situation and goals.
While triggering an IRMAA surcharge may be unavoidable in some cases, understanding the potential implications can help you plan ahead and avoid any surprises. Remember to stay informed and make informed decisions to protect your financial well-being in retirement.
