For retirees who booked a large capital gain in 2024, the Income-Related Monthly Adjustment Amount is now adding thousands of dollars to their Part B and Part D Medicare premiums. The surcharge stems from Medicare’s two-year lookback rule, which pulls modified adjusted gross income (MAGI) from a prior tax return to calculate current-year costs.A married couple filing jointly with a $210,000 taxable gain layered on top of roughly $130,000 in other retirement income could face combined surcharges exceeding $5,600 for the year, 24/7 Wall St. reported. The surcharge applies even though the gain was a one-time event, because Medicare treats it the same as recurring income.How Medicare’s two-year lookback inflates premiums after a property saleThe Social Security Administration uses MAGI from the tax return filed two years prior to set surcharge levels.Your 2024 return, filed in early 2025, determines the premiums you pay throughout 2026, the Centers for Medicare and Medicaid Services confirmed.Mike McCracken, president and founder of Wealth Guide Financial, told Fortune that Medicare’s two-year lookback means a property sale at 64 can trigger higher premiums at 66, catching retirees who did not run the numbers before closing.You see, Medicare looks back two years at your tax return to calculate IRMAA…If 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 MedicareFor joint filers, the first surcharge tier kicks in when MAGI exceeds $218,000. A couple whose combined income reaches roughly $340,000 after adding a rental sale gain and depreciation recapture lands in the second surcharge tier.At that level, each spouse owes an additional $202.90 per month for Part B, according to 2026 CMS premium tables. A Part D surcharge of $37.50 per person per month layers on top, with both spouses on Medicare paying the surcharge separately.Why a single bracket jump can outrun a year of retirement incomeThe surcharge operates as a cliff rather than a graduated scale, which means crossing a threshold by even one dollar triggers the full premium increase for that tier. A couple earning $217,999 pays zero in surcharges, but landing at $218,001 locks in the complete first-tier jump for the full calendar year. That cliff structure makes a one-time property gain especially punishing for retirees whose regular income already sits near a bracket boundary.More Medicare/Medicaid:Medicare’s 2033 funding crisis: What retirees should do right nowMedicare and health insurance company files Chapter 11 bankruptcyMedicaid estate recovery could blindside homeownersTaylor Schulte, a certified financial planner and founder of Define Financial, wrote on his Stay Wealthy retirement blog that even modest income increases near these thresholds can push retirees into a higher bracket and raise costs for both Parts B and D. The capital gains tax bill is only one part of the total cost of selling appreciated property after age 63, financial planners warn. A single IRMAA bracket jump can wipe out an entire year of Social Security cost-of-living increases for both spouses, given the modest size of the 2026 adjustment.
Just one dollar above an IRMAA threshold can trigger Medicare costs that exceed a full year of retirement income growth.Halfpoint Images/Getty Images
Why an SSA-44 appeal cannot rescue a voluntary property saleRetirees who experience a qualifying life-changing event can file Form SSA-44 with the Social Security Administration to request a premium redetermination using more recent income data. Qualifying events include work stoppage or reduction, marriage, divorce, death of a spouse, loss of pension income, employer settlement payments, and loss of income-producing property due to involuntary events such as disaster or theft, the Social Security Administration confirmed. Retirees who chose to sell cannot appeal the resulting surcharge, even though the gain was a one-time event that will not repeat in future years. Once the gain appears on the filed return, the corresponding premium increase is locked in for the full calendar year.Pre-sale strategies advisors recommend to reduce the IRMAA impactFor retirees who have not yet closed a sale, several approaches can keep MAGI below surcharge thresholds, Schulte wrote in his IRMAA guide.Structuring the transaction as an installment sale spreads the taxable gain across multiple tax years, keeping each year’s income lower, Schulte explained on his Stay Wealthy retirement blog.Take the 24/7 Wall St. example of a couple with $130,000 in other retirement income selling a rental at a $210,000 gain. Recognizing the full gain in one year would push their MAGI to $340,000, well into the second tier. Spreading the gain over three years through an installment sale would keep their annual MAGI near $200,000, below the $218,000 surcharge threshold.A 1031, or “like-kind,” exchange defers both the capital gain and the depreciation recapture if the seller identifies a replacement property within 45 days of closing and completes the purchase within 180 days, according to Internal Revenue Service rules.The approach entirely defers the impact of the surcharge but only works for investors who intend to remain in real estate.Why projecting income matters before signing a sale contractRunning a MAGI projection before listing the property gives retirees a clear picture of which surcharge tier the gain will trigger, Schulte wrote in his IRMAA guide.The relevant joint thresholds for 2026 are $218,000, $274,000, $342,000, $410,000, and $750,000, the Centers for Medicare and Medicaid Services confirmed. Schulte noted that knowing exactly where projected income falls determines whether an installment structure justifies the added complexity. With the 2026 cost-of-living adjustment already factored into benefit amounts, an unexpected IRMAA bracket jump can offset a significant portion of the year’s cost-of-living increase, Schulte noted.The 2026 CMS top-tier threshold remains frozen at $750,000 for joint filers, leaving the lower four brackets to expand only with annual inflation indexing.Related: How does Medicare IRMAA work?