She Puts Off Selling Her $900,000 Home as Sales Hit a 16-Year Low. Waiting Three Years Could Cost Her a $250,000 Tax Break and Raise Her Medicare Premiums
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Existing-home sales fell 5.5% in October to an annualized 3.75 million. The Wall Street Journal called it a 16-year low. Consider a single retiree on Medicare who owns a $900,000 home she has lived in for years. She wants to sell, but buyers look scarce. So she moves out in December 2026 and rents the house until prices recover. Those rent checks buy her time, and her move-out date starts a tax clock she can’t pause.
About 8% of Part B enrollees pay income-related surcharges. A large gain on a long-held home can put a seller in that group for a year.
Renting Starts a Countdown on Her $250,000 Exclusion
Renting out her home doesn’t immediately cost her the $250,000 tax break. To keep it when she eventually sells, she generally must have owned and lived in the house for at least two of the five years before closing. The longer she rents it out, the closer she gets to losing that exclusion.
For now, she’s collecting rent and waiting for buyers to return. But she can’t wait indefinitely if she wants to preserve the tax break when she eventually sells. Having moved out on December 15, 2026, she generally has until December 15, 2029, to complete a sale. If the market hasn’t improved and she keeps renting into January 2030, she’ll have missed that deadline. Even listing the house before it expires won’t help if the sale closes too late.
One Late Closing Exposes All $400,000 of Gain
Assume a $900,000 sale price, a $460,000 adjusted basis after rental depreciation and $40,000 in selling costs. That makes her gain $400,000. If she sells before the deadline, $150,000 stays taxable. If she sells after it, all $400,000 is taxable.
Treat the depreciation separately. The exclusion can’t shelter gain equal to depreciation claimed after May 6, 1997, so she pays tax on that piece either way, and it falls inside the $150,000. The gap between the two results comes entirely from the $250,000 exclusion she would lose.
She also has $50,000 of other income, including net rent. If she sells late, her modified adjusted gross income (MAGI) rises from $200,000 to $450,000. Assuming the additional $250,000 gain is taxed at the 15% long-term capital gains rate, losing the exclusion adds $37,500 in federal tax. The 3.8% net investment income tax could add another $9,500, assuming she has no other adjustments affecting that calculation. An on-time sale would leave her income at the $200,000 threshold, avoiding that additional tax under these assumptions.
Medicare Bills Her for the Sale Two Years Later
IRMAA is set by Social Security from MAGI, which it defines as adjusted gross income plus tax-exempt interest, taken from the tax return the IRS sends it. That return runs two years behind, so a 2029 sale generally drives 2031 premiums, and a 2030 sale drives 2032 premiums. The table uses 2026 rates as a stand-in.
| Sale timing | MAGI | Monthly Part B surcharge (per person) | Monthly Part D surcharge (per person) | Annual surcharge total (per person) |
|---|---|---|---|---|
| By Dec. 15, 2029 | $200,000 | $324.60 | $60.40 | $4,620 |
| January 2030 | $450,000 | $446.30 | $83.30 | $6,355.20 |
Even the on-time sale triggers a substantial Medicare surcharge. Using 2026 rates for both scenarios, the late sale would add $1,735.20 in annual surcharges. Combined with the extra taxes, missing the deadline could cost her roughly $48,735 under these assumptions. The actual difference remains uncertain because the sales would affect different future tax and Medicare premium years.
Two more traps follow her. Net rental income, after deductible expenses and depreciation, counts toward MAGI. That means renting the house could also affect her Medicare premiums in the years before she sells. Form SSA-44 won’t erase the surcharge simply because she sold the house. Social Security can reconsider premiums after certain life-changing events, including retirement, reduced work hours and a spouse’s death. A voluntary home sale isn’t one of them (we covered IRMAA and other premium traps in a free Medicare guide).
Three Moves to Make Before She Signs Another Lease
- Lock down her move-out date. Keep the utility transfer, change-of-address confirmation and first tenant lease. That date sets her deadline, so she should mark December 15, 2029 and plan back from it.
- Work out the real gain now. Start with the expected sale price, then subtract selling costs and her adjusted basis, accounting for depreciation taken during the rental years. That will show how much gain remains taxable even if she qualifies for the exclusion.
- Compare waiting with the cost of missing the deadline. A higher selling price might make waiting worthwhile, but she needs to weigh the additional proceeds against the taxes and Medicare surcharges she could incur by losing the exclusion. If she plans to sell, listing by early 2029 leaves time to recover from a slow buyer or a failed inspection and still close on time.
She can wait for a better offer, but the IRS won’t extend her deadline just because the housing market hasn’t improved.
Contact [email protected] for any questions or corrections.
Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
