House sale and ACA?

[garyt]

In 2010 I bought my parents a foreclosed home on my block. Fixed it up and moved them in. Mom passed in 2012 and my Dad just passed on Thanksgiving morning. So I have a house to sell but my wife is on ACA. Will I have to show the profit on that house as income? The house was in my name but I quit deeded my Dad's name on it years ago if that matters.
Might just have to hang onto it for a year because even paying taxes and insurance is less than the cost of health insurance without a subsidy.

 

[pb4uski]

To start, sorry for your loss. Been there, not fun.

Please elaborate. At the time your dad died, was the house in his name or both your names?

If the house was in your Dad's name then it would get a stepped up basis by whoever inherits it so the gain on sale and ACA implications should be negligible (unless it appreciates alot while in probate).

 

[pacergal]

Condolences on the loss of your Dad.

 

[garyt]

To start, sorry for your loss. Been there, not fun.

Please elaborate. At the time your dad died, was the house in his name or both your names?

If the house was in your Dad's name then it would get a stepped up basis by whoever inherits it so the gain on sale and ACA implications should be negligible (unless it appreciates alot while in probate).

It was in both our names, he was added via a quit claim after a few months of purchasing.

 

[garyt]

Condolences on the loss of your Dad.

Thank you, tough times. He was 100!

 

[garyt]

I'll eventually talk to a tax lawyer but just looking for some info before I do.

 

[erkevin]

Capital gains are income for ACA purposes.

 

[pb4uski]

I'll eventually talk to a tax lawyer but just looking for some info before I do.

Any gain on your sale of the house would be income for ACA subsidies.

I think that you'll probably get a stepped up is for your Dad's half, so that would reduce the gain if you sell.

I think your first step is to get a handle on what the property is worth and would sell for and what your basis is (your cost plus any major improvements plus any step-up in basis on your Dad's half). That will give you an idea of whether there really is an ACA problem to be solved or not.

If there is an ACA problem, you could stretch out the gain by doing an installment sale where you provide seller financing and the gain is recognized proportional to what you receive in principal.

How long until your DW is on Medicare?

 

[EastWest Gal]

If you only have to wait a year until she is on Medicare, I would wait the year, but make sure it looks lived in.

 

[garyt]

Any gain on your sale of the house would be income for ACA subsidies.

I think that you'll probably get a stepped up is for your Dad's half, so that would reduce the gain if you sell.

I think your first step is to get a handle on what the property is worth and would sell for and what your basis is (your cost plus any major improvements plus any step-up in basis on your Dad's half). That will give you an idea of whether there really is an ACA problem to be solved or not.

If there is an ACA problem, you could stretch out the gain by doing an installment sale where you provide seller financing and the gain is recognized proportional to what you receive in principal.

How long until your DW is on Medicare?

Wife hits Medicare in sept 2025

 

[Texas Proud]

How was the deed titled? I am not sure but it might make a difference...

Also remember any updates/upgrades you spent money on is included in the basis...

 

[SecondCor521]

It was in both our names, he was added via a quit claim after a few months of purchasing.

My condolences.

You will get a step up in basis due to his death. It will either be just his 50% of the house or, if the house was in a community property state, then you may get a 100% step up in basis - check the state rules where the house is located. The step up will be based on FMV as of his date of passing. (*)

Any improvements before his death would not be applicable to basis, because they occurred before any step up.

You can probably reduce your proceeds and/or increase your cost basis by certain closing costs. Most notable among these are the realtor fees. See IRS Pub 523 for the details.

(*) FMV can be taken as the selling price if you sell it reasonably soon in an ordinary market. If the market is booming or busting where the house is, you might want to either get a CMA now from a RE agent, or if you want to be super proper, pay for an appraisal.

 

[GoBears]

My condolences also. Your tax problem may not go away entirely even if you were to delay a sale. With the two year look back, your 2024 income will determine your wife’s Medicare premiums for 2026 and your 2025 income will determine her premiums for 2027. My 95 year old father is facing significant increased Medicare premiums in 2025 due to IRMAA because he sold his townhome in 2023 and realized a large gain. My understanding, and someone please correct me if I am wrong, is that the sale of a home is not considered a life changing event that excludes the gain for IRMAA purposes. So, be sure you factor in any possible increased Medicare premiums when analyzing the most opportune time to sell.

 

[jim584672]

Capital gains - Glossary

Learn about capital gains by reviewing the definition in the HealthCare.gov Glossary.

www.healthcare.gov

"You don't need to include a capital gain if it's from the sale of your main home you owned for at least 5 years (and the profit is less than $250,000)."

 

[pb4uski]

But in this case it isn't the OP's main home... it is a home his father lived in and they owned jointly.

 

[EastWest Gal]

Wife hits Medicare in sept 2025

Well then wait until next year. I waited six months before selling my dad's condo after his brain hemorrhage. It was clear he was never coming home again, but inertia and the full time job got in the way of me acting before then. It wasn't a big deal to wait.

 

[garyt]

My condolences also. Your tax problem may not go away entirely even if you were to delay a sale. With the two year look back, your 2024 income will determine your wife’s Medicare premiums for 2026 and your 2025 income will determine her premiums for 2027. My 95 year old father is facing significant increased Medicare premiums in 2025 due to IRMAA because he sold his townhome in 2023 and realized a large gain. My understanding, and someone please correct me if I am wrong, is that the sale of a home is not considered a life changing event that excludes the gain for IRMAA purposes. So, be sure you factor in any possible increased Medicare premiums when analyzing the most opportune time to sell.

Good point, thank you

 

[gwill1010]

Rent it for a year or so.

 

[isisdave]

Or you could move into it for two years and make it your residence, then sell it.

Or figure out how much the ACA subsidy is -- maybe the loss of that is less than having to do something complicated.

And consider whether and how much it'll appreciate between now and September. Maybe take the time to fix it up and then sell. You'll probably come out ahead.

 

[imnontrad]

Did you inherit the house? If so, you got a step up in basis. If you sell it immediately, My guess is that the net sale (selling prie - expenses) would be less than that stepped up basis and no capital gains tax will be due. In fact, you might even have a loss.