A Couple Who Sells the House at 70 With $300,000 of Gain Above the Exclusion Pays the Capital Gains Tax in April and a Medicare Surcharge Two Years Later, for Both of Them. Unlike Retiring, a Home Sale Doesn’t Count as a Reason to Appeal
Selling the family home clears one tax bill from the calendar, but it quietly sets a second one in motion that most couples never see coming until Medicare sends a notice two years later, addressed to each of them separately.
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A married couple, both 70, sell the house they’ve lived in for decades and move to a smaller place. Their gain is $300,000 above the home-sale exclusion. They’ve set money aside for the capital gains tax due in April. However, they haven’t planned for a second bill: a Medicare premium surcharge that shows up two years later and is charged to each of them separately.
How the Home-Sale Exclusion Sets the Starting Point
A married couple filing jointly can shield up to $500,000 of home-sale gain from federal taxes. To get the full amount, either spouse must have owned the home, and both must have lived in it as their main residence for at least 2 of the 5 years before the sale. IRS Publication 523 defines gain as the amount realized (the sale price minus selling costs) minus the adjusted basis, which is what the couple paid plus qualifying improvements (selling price minus selling expenses, minus adjusted basis).
What the April Tax Bill Includes
Gain on a home held longer than a year is taxed at long-term capital gains rates. For 2025, IRS Publication 550 sets the 20% rate at $600,051 in taxable income for joint filers. Below that, most gain is taxed at 15%.
Assume the couple has $120,000 in other income from Social Security and IRA withdrawals. Adding the gain brings their income to $420,000. At 15%, the gain triggers a $45,000 federal bill.
A second federal tax applies on top of that. The net investment income tax is a 3.8% surtax on investment income once income passes $250,000 for joint filers. Treasury regulations apply the normal income tax rules to this surtax, so the excluded part of the gain stays out, and the part above the exclusion is counted (26 CFR 1.1411-1(a)). The surtax here works out to $6,460.
Why Medicare Bills Both Spouses Two Years Later
Medicare charges higher-income members an income-related monthly adjustment amount, or IRMAA, on top of the standard premium. Medicare sets it based on the modified adjusted gross income shown on the tax return from two years earlier. For example, 2026 premiums use 2024 income. A sale that closes in 2026 shows up in premiums for 2028.
For 2026, the surcharge kicks in for joint filers above $218,000. An income of $420,000 falls in the $410,000-$750,000 tier. In that tier, each spouse pays $649.20 a month for Part B, compared with the standard $202.90.
Because the amount is charged per person, the couple’s extra Part B cost comes to $10,711 for the year. The Part D drug-coverage surcharge adds $1,999, bringing the total to $12,710. The 2028 income thresholds will differ, but the surcharge works the same way.
Why a Home Sale Isn’t on the SSA-44 List
We recently covered how a new retiree can get the surcharge lowered by reporting a work stoppage. That request is made on Form SSA-44, which asks Social Security to use income from a more recent year. Social Security’s operations manual lists qualifying events: death of a spouse, marriage, divorce or annulment, work reduction, work stoppage, loss of income-producing property, loss of employer pension income, and receipt of an employer payment.
Each of those events is a change in circumstances that cuts income going forward. A home sale increases income for one year, and the reverse applies. The manual says a voluntary sale of income-producing property isn’t a loss of that property, and that capital gains from selling property, including from selling a home, don’t count as a life-changing event.
Options for Shrinking the Gain or Moving It
A higher basis means a smaller gain. Publication 523 lists improvements that add to basis, including a new roof, a deck, central air conditioning, and kitchen modernization. Routine maintenance like painting or fixing leaks doesn’t count, so old receipts for major projects matter.
Timing changes which year the gain lands in, and closing in a year with lower other income can keep total income in a lower tier. You can also keep the sale out of the same year as a Roth conversion or a large IRA withdrawal. IRS guidance generally requires traditional IRA withdrawals to start at age 73, and that year can affect the timing of a sale.
Seller financing is another option. IRS guidance allows any nonexcludable gain to be reported on an installment basis using Form 6252, with gain taxed as payments come in (26 U.S.C. § 1001(d)). The buyer’s interest payments are taxed at ordinary income rates. Because Medicare reviews a new tax return each year, the surcharge drops away once income falls back.
Running the Two-Year Number Before Accepting an Offer
Before signing, the couple can estimate their total income for the year of the sale: other income plus the gain above the exclusion. Then they can check where that total falls in the Medicare tiers, keeping in mind it will set premiums for both of them two years later. That one number covers both bills: the April tax and the surcharge that follows.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
