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Aside from loads of extra free time and the freedom to pursue new hobbies, one of the most exciting moments of retirement can be when it\u2019s finally time to sell the family home and downsize. Not only does it mean less maintenance on a home, but it can also be a great financial boon\u2014especially thanks to multi-decade home appreciation.\u00a0<\/p>\n
Typically, Americans start retirement and the downsizing process in their mid 50s to mid 60s, with some waiting until their 70s or 80s. But there\u2019s a major consideration to be made when deciding the right time to sell the family home and downsize\u2014and it could be a make-it or break-it monthly health care expense.\u00a0<\/p>\n
It comes down to a Medicare premium surcharge called an income-related monthly adjustment amount (IRMAA). When you turn 65, you qualify for the government health insurance for seniors, Medicare. It charges monthly premiums, but if you earn a lot of money in a given year\u2014say, through a major home sale\u2014those premiums spike dramatically due to the IRMAA surcharge.\u00a0<\/p>\n
For Mike McCracken, president and founder of Wealth Guide Financial, the \u201cnumber one mistake\u201d he sees is when a home is sold too close to or after turning age 63 without running the numbers first.\u00a0<\/p>\n
\u201cYou see, Medicare looks back two years at your tax return to calculate IRMAA,\u201d McCracken told Fortune. \u201cIf you sell in 2025 at age 64, and that capital gain shows up on your 2025 return, it can trigger higher premiums starting in 2027 when you are already on Medicare.\u201d<\/p>\n
McCracken gave the example of a couple selling their home with $300,000 of taxable gain. That would push them into the second or third tier of IRMAA\u2014a difference that could end up costing hundreds of more dollars per month, or thousands of dollars per year. By 2027, McCracken explained, their Medicare premiums would\u2019ve jumped from about $406 per month to more than $800 per month.\u00a0<\/p>\n
This is an issue little-known among seniors who are looking to sell their house: \u201cThis topic is often brought up where retirees are in shock after receiving their Medicare bill,\u201d McCracken said.<\/p>\n
And it\u2019s becoming an increasingly hot issue, with more \u201cclients getting blindsided,\u201d Elizabeth Gavino, principal of financial and retirement planning firm Lewin & Gavino, told Fortune.<\/p>\n
\u201cAnd it\u2019s getting worse,\u201d she said.\u00a0<\/p>\n
That\u2019s largely due to how much homes have appreciated over the past few decades. A couple who bought in coastal California in the early \u201890s can easily have $800,000 to $1.5 million in total home appreciation, she explained, leaving them with up to $1 million in taxable gains in their modified adjusted gross income (MAGI).<\/p>\n
\u201cThey had no idea it would touch their Medicare premiums,\u201d she said. \u201cThe thing that makes this so painful is the two-year look-back. They sell the house, they move on, and then two years later Medicare sends a bill they weren\u2019t expecting.\u201d<\/p>\n
And McCracken only expects this issue to continue.\u00a0<\/p>\n
\u201cTo make matters worse, the median home prices have more than tripled in many areas,\u201d he said. \u201cEven moderate gains after the exclusion are enough to trigger IRMAA. I expect this to worsen.\u201d<\/p>\n
This problem can be especially bad in hot markets like Florida, where prices surged during the pandemic, according to Jenna Stauffer, global real estate advisor and broker associate at Sotheby\u2019s International Realty.<\/p>\n
\u201cThat\u2019s why planning ahead is becoming even more important,\u201d Stauffer told Fortune.<\/p>\n
How can I avoid IRMAA?<\/p>\n
Still, there are a few options to make sure this doesn\u2019t happen to you when you plan to retire and downsize. First, if possible, try selling before age 63 to avoid the rule altogether.\u00a0<\/p>\n
Another option would be to just age in place if you\u2019re over the age of 63 already, as the sale could potentially trigger a massive financial gain, leading to sky-high Medicaid premiums.\u00a0<\/p>\n
\u201cI\u2019ve definitely seen clients pause after speaking with a financial planner and starting to look at the broader financial picture of selling their home,\u201d Stauffer said. \u201cFor so many retirees, their home is their largest asset, so selling can have ripple effects beyond just the real estate transaction.\u201d<\/p>\n
Other options include using a capital gains exclusion: The IRS allows people to exclude up to $250,000 in profit (for a single person) or $500,000 (for a married couple) from the sale of a primary home. Still, though, depending on how expensive the home is and how much it\u2019s appreciated could still be enough to trigger a higher Medicare premium.\u00a0<\/p>\n
But \u201cthe $500,000 exclusion hasn\u2019t moved since 1997,\u201d Gavino warned. \u201cHome values in major markets are up 300% to 500% since then.<\/p>\n
\u201cThis trap is only going to catch more people,\u201d she said.<\/p>\n
The final option is essentially to just suck it up. If you can\u2019t avoid selling your home, just treat it as a one-time cost. Your premiums will normalize once that high-income year falls off the two-year lookback window. But that takes time.<\/p>\n
A version of this story was originally published on Fortune.com on March 11, 2026.<\/p>\n
More on retirement:<\/p>\n
#Selling #home #retirement #hidden #Medicare #surcharge #cost #thousands<\/p>\n","protected":false},"excerpt":{"rendered":"
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