Do Capital Gains Affect Medicare Premiums?

Yes, capital gains can affect your Medicare premiums. A large capital gain realized from selling an asset, such as real estate or stocks, can lead to higher monthly premiums for Medicare Part B and Part D. This increase occurs because the income you report on your tax return is a factor in determining your healthcare costs. When your income rises above certain levels, so can your Medicare premiums.

The system is designed to have higher earners contribute more toward their coverage. A one-time event like a large capital gain can unexpectedly push you into a higher income bracket for Medicare’s purposes, resulting in a noticeable increase in your monthly payments.

The Role of Modified Adjusted Gross Income

The income figure the Social Security Administration (SSA) uses to determine your premiums is called Modified Adjusted Gross Income, or MAGI. For Medicare purposes, the MAGI calculation starts with your Adjusted Gross Income (AGI) from your IRS Form 1040. This AGI figure includes common sources of income, such as wages, retirement account distributions, dividends, and capital gains.

To arrive at your MAGI, any tax-exempt interest you may have earned is added back to your AGI. This type of interest, often generated by municipal bonds, is not subject to federal income tax but is included in the MAGI calculation. Because capital gains are part of your AGI, a large capital gain directly increases your MAGI. For example, if you have an AGI of $80,000 that includes a $30,000 capital gain, that gain is part of the income figure used to set your premiums.

Understanding the Income-Related Monthly Adjustment Amount

The mechanism that links your income to higher premiums is the Income-Related Monthly Adjustment Amount, known as IRMAA. This is not a penalty, but a surcharge that higher-income beneficiaries pay in addition to their standard Medicare Part B and Part D premiums. If your MAGI exceeds a predetermined annual threshold, you will be required to pay this extra amount for a full 12-month period.

A feature of the IRMAA system is its two-year lookback period. The SSA uses the MAGI from your federal tax return from two years prior to determine your premiums. For example, your 2025 Medicare premiums are based on the MAGI from your 2023 tax return. This delay means a financial event today, such as the sale of a business, could trigger an IRMAA surcharge two years from now.

IRMAA Brackets and Surcharges

The IRMAA surcharges are applied on a sliding scale based on your MAGI and tax filing status. For 2025, the income thresholds begin at $106,000 for an individual and $212,000 for a couple filing a joint tax return. If your 2023 MAGI was below these amounts, you will pay the standard Part B premium, which is $185.00 for 2025.

For those with MAGI above the initial threshold, the surcharges for Part B increase across five distinct income tiers. An individual with a 2023 MAGI between $106,001 and $133,000 will pay a total of $259.00 per month for Part B in 2025. At the highest tier, an individual with a MAGI of $500,000 or more will pay $628.90 per month. These amounts reflect the standard premium plus the IRMAA surcharge.

A similar tiered structure applies to Medicare Part D prescription drug plans. The Part D IRMAA is a fixed dollar amount added to your specific plan’s premium. In 2025, these monthly surcharges range from $13.70 for those in the lowest surcharge bracket to $85.80 for those in the highest income bracket.

Requesting a Reconsideration of Your IRMAA

If your income has decreased since the tax year used to determine your IRMAA, you can request a new decision from the SSA. This is done when you have experienced a “life-changing event” that has caused a reduction in your MAGI. The SSA recognizes specific events that qualify, such as marriage, divorce, death of a spouse, work stoppage or reduction, and loss of an income-producing property.

To initiate this process, you must complete and submit Form SSA-44, “Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event.” On this form, you will provide details about the event and document the resulting income reduction. You will need to furnish evidence, such as a death certificate or a letter from a former employer, along with an estimate of your current, lower MAGI.

The completed Form SSA-44 and all supporting documents should be submitted to your local Social Security office by mail, fax, or in person. If your request is approved, your Medicare premiums will be adjusted to reflect your new, lower income level.

Strategies for Managing Income

Proactive financial planning can help manage your MAGI and potentially lessen the impact of IRMAA surcharges. One strategy is timing the sale of assets. Spreading large capital gains over multiple tax years can prevent a single-year income spike that would push you into a higher IRMAA bracket two years later.

Another effective technique is tax-loss harvesting. This involves selling investments at a loss to offset realized capital gains. The losses can cancel out the gains, thereby reducing your overall AGI and MAGI. This must be done within the same tax year to be effective for the IRMAA calculation.

Utilizing tax-advantaged retirement accounts can also be beneficial. Distributions from Roth IRAs and Roth 401(k)s are tax-free and are not included in the MAGI calculation. Similarly, making a Qualified Charitable Distribution (QCD) directly from a traditional IRA can satisfy your Required Minimum Distribution (RMD) without increasing your income.