08 Jan Will my Medicare payments go up because of my home sale?
Q. I recently sold my mom’s home, listed as my secondary residence. How much tax is going to be assessed and does the profit count as income? Will Medicare payments rise dramatically because of the sale?
A. Congrats on the sale of your home.
And yes, you will be in for some changes because of the sale.
First, primary residences are afforded special tax treatment when sold, specifically, the exclusion of a statutory amount of realized capital gain based on your filing status, said Cynthia Fusillo, a certified public accountant with Peapack Private Wealth Management in New Providence.
However, second homes, such as the one you recently sold, do not qualify for any exclusion of gain on sale, she said.
As a result, your realized gain will be taxed in full as long-term capital gain if held more than one year, or as a short-term capital gain if held one year or less, she said.
“Long-term capital gains do currently benefit from preferential federal tax rates and can be 0%, 15% or 20% depending on your income,” Fusillo said. “There are no preferential rates at the New Jersey State level.”
Medicare premiums are, as you indicated, based on your income — specifically, your Modified Adjusted Gross Income (MAGI).
Your MAGI is your adjusted gross income as shown on your tax return, plus any tax-exempt interest income you received, she said.
“The realized gain on the sale of your second home will be counted in your MAGI for the purpose of determining which Medicare premium tier you fall into,” Fusillo said. “Keep in mind that there is a two year look back. For example, if you sold the home in 2020, and the gain on that sale puts you into another Medicare tier, your premiums won’t increase until 2022.”
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This story was originally published on Jan 8, 2021.
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