Suze Orman Says a $400,000 Rental Gain Can Trigger a $10,600 Medicare Bill and the Closing Date Is the Only Thing You Control

Pat called into Suze Orman’s Women & Money podcast last fall with a problem most landlords never see coming. She and her husband are selling a rental property and know they will owe capital gains tax on the appreciation. The gut punch came from a separate question: does the sale lock them into two years of higher Medicare premiums under IRMAA, or can they limit the surcharge to a single year?

Suze’s answer on the September 26 episode was direct. The two-year IRMAA look-back is federal law. You cannot negotiate it down to one year. But the actual damage depends entirely on how the closing is structured, and that is where most sellers cost themselves real money without realizing it.

What IRMAA Actually Looks At

IRMAA stands for Income-Related Monthly Adjustment Amount. It is the surcharge Medicare tacks onto Part B and Part D premiums when your modified adjusted gross income crosses certain thresholds. The mechanic that catches sellers off guard: Medicare does not look at this year’s income. It looks at your tax return from two years ago.

Your 2026 Medicare premiums are based on the MAGI you reported on your 2024 return. Your 2028 premiums will be based on your 2026 return. If Pat closes the rental sale in 2026, that capital gain hits her 2026 return, which Medicare reads in 2028. By 2029, looking back at her 2027 income, the spike is gone and premiums reset.

The phrase “two-year look-back” confuses people into thinking they pay the surcharge for two years. It is actually a two-year delay between the income year and the premium year. One year of elevated income equals one year of elevated premiums, assuming the entire gain falls in one tax year.

Where One Year Becomes Two

A rental sale that straddles a calendar year, or one structured as an installment sale, spreads the gain across two tax returns. Now both years carry the bump. Medicare hits you with the surcharge in 2028 AND 2029. That is the avoidable mistake.

Take a realistic case. Pat and her husband bought a rental years ago for $200,000 and sell in 2026 for $700,000. After depreciation recapture and adjusted basis work, assume a $400,000 long-term capital gain. Their normal joint MAGI is roughly $150,000 from Social Security, pensions, and dividends. In the sale year, MAGI spikes to roughly $550,000.

That puts them in the 35% federal bracket on the ordinary income portion (joint income over $501,050 in 2025), with the gain taxed at 20% long-term capital gains plus the 3.8% Net Investment Income Tax. Capital gains tax alone runs roughly $95,000. Then IRMAA arrives. At joint MAGI above roughly $750,000, both spouses pay the top Part B surcharge, which adds about $443 per person per month over the standard premium, the surcharge is roughly $10,600 in extra Medicare premiums for the surcharge year, plus a smaller Part D adder. Compress the sale into one tax year, and you write that check once. Let it bleed into January, and you write it twice.

The Variable That Decides It

The single factor that changes Pat’s outcome is the closing date. Everything else (the gain, the capital gains rate, the depreciation recapture) is locked in by the contract. The closing date is the one lever the seller controls.

Close in March 2026, and the gain lands cleanly in one tax year. One IRMAA surcharge year in 2028. Close on December 28 with a wire that does not actually settle until January 2, and you have created a two-year IRMAA event by accident.

Suze has been clear on her podcast that the $250,000 primary residence exclusion does not apply to rental property unless you have lived in it as a primary residence for two of the past five years. Pat cannot lean on that. Her real options are a clean single-year close, a 1031 exchange into another investment property with a qualified intermediary handling the paperwork inside the 45-day identification window, or accepting the one-year IRMAA hit as the price of cashing out.

What To Do Before You Sign

1. Pull your adjusted cost basis. Add capital improvements you have documented. Subtract accumulated depreciation. The number you land on, not the contract price, drives the gain.
2. Project your full MAGI for the sale year and check it against current IRMAA brackets on the SSA website. Know which tier you will land in before you set a closing date.
3. Push the closing fully into one calendar year. Avoid installment terms that split the recognized gain across two returns unless you have run the IRMAA math both ways.
4. If you do not need the cash, price out a 1031 exchange with a qualified intermediary before listing.
5. File Form SSA-44 if the income spike is from a one-time sale and your circumstances qualify. It will not change the look-back rule, but it can adjust the surcharge in limited situations.

Pat’s instinct to ask the IRMAA question before signing is the part most sellers skip. The capital gains tax is the headline number. The Medicare surcharge is the one that quietly arrives two years later, and the closing date on the contract decides whether it shows up once or twice.