IRMAA hits retirees two years after property sale
Retirees who experienced a significant capital gain in 2024 are now facing higher Part B and Part D Medicare premiums due to the Income-Related Monthly Adjustment Amount. This surcharge is a result of Medicare’s two-year lookback rule, which uses modified adjusted gross income (MAGI) from a prior tax return to calculate current-year costs.
According to a report by 24/7 Wall St., a married couple filing jointly with a $210,000 taxable gain on top of around $130,000 in other retirement income could see combined surcharges exceeding $5,600 for the year. The surcharge applies even if the gain was a one-time event, as Medicare treats it as recurring income.
The Social Security Administration uses MAGI from the tax return filed two years prior to determine surcharge levels. This means that the premiums retirees pay in 2026 are based on their 2024 tax return. Mike McCracken, president of Wealth Guide Financial, highlighted that a property sale at 64 can trigger higher premiums at 66 due to Medicare’s two-year lookback.
The surcharge operates as a cliff, meaning that crossing a threshold by even one dollar triggers the full premium increase for that tier. A couple earning $217,999 pays zero in surcharges, but at $218,001, they face the complete first-tier jump for the entire year. This can be especially punishing for retirees whose regular income is near a bracket boundary.
Retirees who sell a property cannot appeal the resulting surcharge, even if it was a one-time event. However, those who experience a qualifying life-changing event can file Form SSA-44 with the Social Security Administration to request a premium redetermination using more recent income data.
For those who have not yet sold a property, several strategies can help reduce the impact of IRMAA. Structuring the transaction as an installment sale can spread the taxable gain across multiple years, keeping each year’s income lower. A 1031 exchange, also known as a like-kind exchange, can defer both the capital gain and depreciation recapture if the seller identifies a replacement property within specific timeframes.
It is essential for retirees to project their income before selling a property to determine which surcharge tier the gain will trigger. Knowing where projected income falls can help decide if an installment structure is necessary. Unexpected IRMAA bracket jumps can offset a significant portion of the year’s cost-of-living increase, so planning ahead is crucial.
In conclusion, understanding how Medicare’s two-year lookback rule affects premiums after a property sale is crucial for retirees. By implementing pre-sale strategies and projecting income accurately, retirees can mitigate the impact of IRMAA and make informed decisions about their finances.
