Retirees who sell highly appreciated homes and downsize may face an unexpected financial consequence, higher Medicare premiums caused by the income-related monthly adjustment amount, IRMAA, Fortune reports.
The issue occurs because Medicare calculates premiums using tax returns from two years earlier. A large home sale can create a temporary spike in taxable income, potentially pushing retirees into higher IRMAA brackets once they enroll in Medicare. Financial advisers warn that selling a home too close to age 63 or later without planning could result in significantly higher premiums.
For example, a couple with a $300,000 taxable gain from selling their home could see Medicare premiums increase from about $406 per month to more than $800 per month, costing thousands of dollars annually. Many retirees are surprised because the higher bills arrive years after the home sale.
The risk is growing as decades of home appreciation have created large gains for many homeowners, particularly in expensive markets. Some longtime homeowners may have hundreds of thousands of dollars, or even more than $1 million, in appreciation that can affect their Medicare costs.
Financial experts recommend planning ahead by considering a home sale before age 63 when possible, evaluating whether to remain in the home longer and using the IRS primary residence capital gains exclusion of up to $250,000 for individuals or $500,000 for married couples.
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