Cost Segregation, Income Limits, and ACA Subsidies

refi

Recycles dryer sheets
Joined
Jul 26, 2017
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Hopefully, this question isn't too convoluted, please point me elsewhere if it is :) ..

Should I, and how much accelerated depreciation through a cost segregation study should I take this year to be eligible for ACA benefits/tax credits?

This year, my severance ended in March, along with my COBRA benefits. I earned $236K from severance and am now FIRE'd.

For the rest of the year, I made an additional $70K from side hustles/interest/dividends and $130K in real estate income. I am a real estate professional by tax designation, so I can offset my W-2 severance income with my RE depreciation.

Should I just focus on reducing a portion of the $186K (post-retirement income) to lower my MAGI within the ACA threshold, or does the severance income also count toward my MAGI for ACA benefits in calculating my 2025 benefits?

Thanks in advance!
 
I’m not sure exactly what the question is, but the severance paid in 2024 does not count toward MAGI in 2025. The ACA MAGI is only income earned in 2025.
 
Your 2025 benefits will be based on your 2025 income. Anything that happened in 2024 isn’t relevant.
 
I agree that I'm not really certain what the question is (or what year the OP is questioning). But... Your 2024 MAGI will ultimately determine you 2024 ACA subsidy, assuming you started on an ACA plan after your COBRA ran out in March. It will be reconciled fully on your 2024 tax return you will soon be filing.

Your 2025 MAGI will determine your 2025 subsidy.

Yes, you increase subsidies (in both years) by decreasing your MAGI for that year in some legal manner.
 
I have a vague memory that you may get asked why your 2015 income estimate is much lower than your 2014 actual, but they should accept your explanation.
 
Thank you to everyone for clarifying that this year's MAGI will determine my 2024 subsidy. I thought it was based on the prior year's income.

For 2024, my W-2 income (severance) is $236K, and I have an additional $200K in other income, bringing my total income to approximately $436K. My ACA coverage didn’t start until after the $236K was paid in March. So my question -- is the subsidy calculation based on the $200K or the full $436K? Given the feedback, it sounds like $436k? I thought it was based on the income after my COBRA ($200k) when I was filling out the estimates when I applied for ACA, so trying to avoid any subsidy penalties.

I can lower my MAGI by running cost segregation studies on my rental properties, so I’m trying to figure out how many studies I’d need to run.

Hopefully, this question is clearer now—thank you for your help! Still trying figure this healthcare thing! yeesh.
 
Yes, no subsidy this year.... and I am going to make a wild guess that you might not get one next year either... sounds like your income without severance is high by itself..
 
I agree with RetiredHappy. Your 2024 tax return will calculate a total MAGI for 2024. That will be used elsewhere on your tax return (Form 8962 - Premium Tax Credit) to calculate how much of a subsidy you were entitled to get in 2024. Any differences from the total subsidies you actually received in 2024 are calculated on 8962 and added into the equation of whether you owe more in taxes or owe less in taxes.
 
Thank you everyone for confirming! Much Appreciated!
 
In 2026 there is a 99% chance the 400% FPL income cutoff comes back. One dollar over and zero subsidies.
 
Just following up, hopefully, this follow-up question isn't as confusing as my original question seemed to be.

I ended up running a cost segregation study on one of my investment properties and was able to accelerate depreciation to reduce my total income to around $70k.

I went to the subsidy estimator and ran the $70k and got this outcome:

You are not likely eligible for financial help

Based on the information you provided, your income is equal to 531% of the poverty level. An estimate of your cost for coverage in 2025 is provided below. To find out your actual amount of financial help and to get coverage, you must go to Healthcare.gov or your state’s Health Insurance Marketplace.

Given this, would it be worthwhile to run an additional cost segregation study on one of my other properties to lower my total income even more? My only concern would be that this might bring my total income to $0 making me to poor for ACA and that I may also be offsetting lower tax bracket income.

TIA!
 
If you run the cost segregation study, are you required to use the results? For 2025, if your income is above 400% FPL, you're expected to contribute up to 8.5% of your income towards your health insurance. The sweet spot varies for everyone depending on their own financial goals, but for our situation, I aim for about 250% FPL.

For 2026, you likely will have to be below 400% to get any subsidy at all.
 
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