A Married Couple Who Sells Their Home at 70 With $300,000 of Gain Over the Exclusion Faces an April Capital Gains Tax and a Medicare Surcharge Two Years Later, One for Each Spouse

Selling a long-time family home can remove one tax problem from the calendar, but it can also trigger another that many couples do not notice until Medicare sends a notice two years later, with each spouse billed separately.

Consider a married couple, both 70, who sell the house they have owned for decades and move into a smaller home. Their gain is $300,000 above the home-sale exclusion. They have already set aside money for the capital gains tax due in April, but they have not accounted for a second charge: a Medicare premium surcharge that arrives later and is assessed separately for each of them.

How the Home-Sale Exclusion Works

A married couple filing jointly may exclude up to $500,000 of home-sale gain from federal tax. To qualify for the full exclusion, one spouse must have owned the home, and both spouses must have used it as their main residence for at least two of the five years before the sale. IRS Publication 523 defines gain as the amount realized, meaning the sale price minus selling costs, less the adjusted basis, which is the original purchase price plus qualifying improvements.

What Goes Into the April Tax Bill

Gain on a home owned for more than a year is taxed at long-term capital gains rates. IRS Publication 550 sets the 20% rate for joint filers at taxable income above $600,051; below that level, most gain is taxed at 15%.

Assume the couple also has $120,000 in other income from Social Security and IRA withdrawals. Adding the gain brings their income to $420,000. At 15%, the gain creates a federal tax bill of $45,000.

Another federal tax also applies. The net investment income tax is a 3.8% surtax on investment income once income exceeds $250,000 for joint filers. Treasury regulations apply the usual income tax rules to this surtax, so the excluded portion of the gain stays out, while the part above the exclusion is included. Under that calculation, the surtax comes to $6,460.

Why Medicare Charges Both Spouses Later

Medicare imposes an income-related monthly adjustment amount, or IRMAA, on higher-income beneficiaries in addition to the standard premium. The amount is based on the modified adjusted gross income shown on a tax return from two years earlier. In practical terms, a sale in one year affects premiums two years later.

For 2026, the surcharge begins for joint filers above $218,000. With income of $420,000, the couple falls into the $410,000 to $750,000 tier. In that bracket, each spouse pays $649.20 a month for Part B, compared with the standard $202.90.

Because the charge is per person, the couple’s added Part B expense totals $10,711 for the year. The Part D drug-coverage surcharge adds another $1,999, bringing the combined total to $12,710. The thresholds for later years will be different, but the structure of the surcharge remains the same.

Why a Home Sale Does Not Count for SSA-44 Relief

A new retiree can sometimes reduce the surcharge by reporting a work stoppage, a point we have covered before. That request is filed on Form SSA-44, which asks Social Security to use income from a more recent year. Social Security’s operations manual lists qualifying events such as death of a spouse, marriage, divorce or annulment, work reduction, work stoppage, loss of income-producing property, loss of employer pension income, and receipt of an employer payment.

Those events all involve a change that reduces income going forward. A home sale does not fit that pattern; instead, it creates income for a single year. The manual says a voluntary sale of income-producing property is not treated as a loss of that property, and capital gains from selling property, including a home, do not qualify as a life-changing event.

Ways to Reduce or Shift the Gain

A higher basis means a smaller taxable gain. Publication 523 says improvements such as a new roof, a deck, central air conditioning, and kitchen remodeling can increase basis. Ordinary maintenance, such as painting or fixing leaks, does not count, which is why records for major projects can matter.

Timing also matters, because it determines which tax year receives the gain. Closing in a year with lower other income may keep the total in a lower bracket. A couple may also try to avoid pairing the sale with a Roth conversion or a large IRA withdrawal in the same year. IRS guidance generally requires traditional IRA withdrawals to begin at age 73, and that can influence the timing of a sale.

Seller financing is another possibility. IRS guidance allows any nonexcludable gain to be reported on an installment basis using Form 6252, with tax paid as the buyer makes payments. The buyer’s interest payments are taxed as ordinary income. Since Medicare reviews a fresh tax return each year, the surcharge can disappear once income falls back down.

Check the Two-Year Medicare Effect Before Accepting an Offer

Before agreeing to a sale, the couple can estimate their income for the year of closing: other income plus the gain above the exclusion. They can then see where that total lands in the Medicare premium tiers, remembering that it will affect both spouses two years later. That single estimate helps capture both the April tax bill and the later Medicare surcharge.