Did you know that selling an investment for a profit could increase your Medicare costs? If you’re planning to sell assets like stocks, real estate, or a business, it’s important to understand how capital gains can affect your Medicare premiums. More importantly, there are strategies you can use to minimize the impact.
In this guide, we’ll explore how capital gains influence your Medicare costs and discuss ways to reduce the financial burden. Be sure to stick around to the end, as I’ll share key strategies that can help keep your Medicare expenses in check.
What Are Capital Gains?
Capital gains are the profits you earn from selling an asset. These assets may include stocks, bonds, real estate, or even a business. There are two types of capital gains:
- Short-term capital gains – Profits from assets held for less than a year. These gains are taxed at your ordinary income tax rate.
- Long-term capital gains – Profits from assets held for more than a year. These are taxed at a lower rate than ordinary income tax, often ranging from 0% to 20%, depending on your taxable income and filing status.
Since long-term capital gains are taxed more favorably than short-term gains, it’s often beneficial to hold onto investments for more than a year before selling.
How Do Capital Gains Affect Medicare Costs?
Capital gains can increase your Medicare Part B and Part D premiums due to the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA is an additional charge added to your Medicare premiums based on your Modified Adjusted Gross Income (MAGI).
How IRMAA Works
Medicare determines whether you need to pay IRMAA by looking at your income tax return from two years ago. So, if you sell an asset in 2023 and report a high income, your Medicare costs in 2025 could be significantly higher.
2025 IRMAA Brackets
Here’s an example of the 2025 IRMAA brackets based on your 2023 income levels:
| 2023 MAGI Single | 2023 MAGI Joint | Part B | Part D |
|---|---|---|---|
| $106,000 or less | $212,000 or less | $185.00 | Plan Premium |
| $106,000 – $133,000 | $212,001 – $266,000 | $259.00 | $13.70 + plan premium |
| $133,001 – $167,000 | $266,001 – $334,000 | $370.00 | $35.30 + plan premium |
| $167,001 – $200,000 | $334,001 – $400,000 | $480.90 | $57.00 + plan premium |
| $200,001 – $500,000 | $400,001 – $750,000 | $591.90 | $78.60 + plan premium |
| $500,000 or more | $750,000 or more | $628.90 | $85.80 + plan premium |
If your income crosses into a higher bracket, your Medicare Part B and Part D costs can increase by hundreds—or even thousands—of dollars annually.
Strategies to Reduce the Impact of Capital Gains on Medicare Costs
Since IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years ago, planning ahead can help you avoid higher Medicare premiums. Here are a few key strategies:
1. Work with a Tax Professional
A Certified Public Accountant (CPA) or tax planner can help you plan ahead and structure your investments strategically to minimize your taxable income. If you’re thinking about selling an asset, consult with a professional to assess how it will affect your Medicare costs.
2. Tax-Loss Harvesting
If you have investments that have lost value, you can sell those at a loss to offset gains from other asset sales. This strategy—known as tax-loss harvesting—reduces your total taxable capital gains and can help keep your income within a lower IRMAA bracket.
3. Delay Social Security Benefits
Social Security benefits are included in your MAGI. If you don’t need the income immediately, delaying Social Security could help keep your taxable income lower in the years when you sell an asset.
4. Spread Out Capital Gains Over Multiple Years
Instead of selling an asset all at once, consider selling it gradually over multiple years. This strategy can help prevent a sudden spike in income that could push you into a higher IRMAA bracket.
5. Consider Charitable Contributions
If you’re charitably inclined, donating appreciated assets directly to a charity instead of selling them can help you avoid capital gains taxes. This can also lower your taxable income and potentially reduce your Medicare costs.
6. Use a Roth IRA for Tax-Free Withdrawals
If you have retirement savings in a Roth IRA, withdrawals are tax-free and do not count toward your MAGI. Using Roth IRA distributions instead of selling taxable assets can help you manage your income levels strategically.
Key Takeaways
- Understand capital gains – Short-term gains are taxed at your regular income tax rate, while long-term gains have lower tax rates.
- Know the IRMAA brackets – Medicare looks at your income from two years prior to determine if you owe additional premium charges.
- Plan ahead – Strategies like tax-loss harvesting, delaying Social Security, and spreading out sales over multiple years can help minimize IRMAA costs.
- Work with a professional – A CPA or financial planner can help you navigate tax-efficient ways to manage capital gains and Medicare costs.
Get Help with Medicare Planning
If you’re concerned about how capital gains might impact your Medicare premiums, I’m here to help. Feel free to reach out at 800-208-4974 directly for personalized Medicare guidance.
Alex Wender is the founder and CEO of Bluewave Insurance. He has been blogging about Medicare-related topics since 2010. Since then, he and his agency have helped thousands of people across the country choose the right Medicare to fit their needs.
