A Big Payday With a Hidden Medicare Bill Attached
Picture a 64-year-old business owner who has spent decades building something worth selling. A buyer is at the table with an offer around $900,000. He is one year away from Medicare enrollment, and on paper this looks like a clean exit. What he may not realize is that taking the full check in one tax year can trigger a five-figure Medicare premium surcharge that follows him into retirement.
This scenario shows up in online forums frequently. A seller closes a deal, files the return, and then two years later opens a letter from Social Security explaining that his Part B premium has tripled. The culprit has a name most people have never heard until it bites them: the Income-Related Monthly Adjustment Amount, or IRMAA.
Why the Two-Year Lookback Changes Everything
IRMAA is a surcharge added to Medicare Part B and Part D premiums for higher earners. The wrinkle that catches sellers off guard is the timing. As Suze Orman put it on her podcast in September 2024, “IRMAA is based on your modified adjusted gross income from two years prior. So they’re always looking back two years.”
That means 2026 premiums are set using the 2024 tax return. A sale closed at 64, before Medicare even starts, can still spike the premium once enrollment begins at 65 or 66. The income is long spent, but the surcharge arrives anyway.
The thresholds act like cliffs rather than gentle slopes. A single filer crosses the first IRMAA tier once modified adjusted gross income (MAGI) passes $109,000, and a joint filer at $218,000. The standard 2026 Part B premium is $202.90 a month. At the top tier, that climbs to $689.90 a month, plus another $91.00 a month tacked onto Part D. For a married couple, the extra Medicare costs in a single year at the top tier compared to staying under the first threshold can run into five figures.
A $900,000 gain dropped into one tax year lands squarely in that top tier. The two-year lookback ensures the premium pain lingers regardless.
The Fix: Spread the Gain With an Installment Sale
Section 453 of the tax code lets the buyer pay over several years, and the seller reports the gain proportionally as payments arrive. The total tax bill is similar, but the income lands in slices instead of one lump.
Taking $900,000 in one year almost guarantees the top IRMAA tier for the premium year tied to that return. Spreading the same proceeds over five years pushes annual reported gain to a fraction of the lump sum, plus interest. For a married couple with modest other income, that may keep MAGI inside the first or second IRMAA band rather than the top one. The seller still pays capital gains tax, but the Medicare surcharge can drop by hundreds of dollars a month, every month, for the years it would have applied.
How It Fits With Everything Else in Retirement
Spreading the gain also smooths interactions with other retirement levers. A lower MAGI year leaves more room to do Roth conversions without bumping into the next IRMAA tier. It can reduce the share of Social Security benefits that gets taxed once those start. And it gives flexibility on when to tap taxable brokerage funds versus traditional IRAs before required minimum distributions (RMDs) begin at 73.
Installment sales carry buyer-default risk, usually require a personal guarantee or collateral, and involve interest the IRS expects to see at a reasonable rate. Depreciation recapture on equipment or real estate is generally taxed in year one regardless, so not every dollar of the sale qualifies for spreading. A CPA who has modeled this before is worth every penny.
What to Think Through Before Signing
Two things matter more than people expect. First, the IRMAA surcharge is reassessed every year, so a one-time spike fades after the lookback window passes, but those one or two expensive years are hard to undo once the return is filed. Second, the structure of the sale is set at closing. Trying to convert a lump-sum deal into installments after the fact is generally not allowed.
Every sale has its own moving parts, and a few details about the buyer, the asset mix, and the seller’s other income can shift the right answer. Run the numbers carefully before the ink dries.
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