Key Takeaways
- On The Ramsey Show, a 68-year-old landlord whose rentals were appraised at $1.7 million was told to sell them and put the money in the market.
- If the sale brings a $1 million long-term gain, his income that year goes past Medicare’s top surcharge line ($500,000 single or $750,000 joint), and at 2026’s figures that adds $487 a month to his Part B premium two years later.
- He’d also owe capital gains tax of up to 20% on the gain, plus the 3.8% net investment income tax. Choosing to sell doesn’t give him a way to ask Social Security for a lower surcharge.
- Selling can still pay far more than the $20,000 a year the rentals net him, as long as he plans for about $200,000 of federal tax and surcharges first.
If you’re thinking about selling a property that’s gone up a lot in retirement, the tax on the gain is only part of the bill. A big gain also lands on the tax return Medicare uses to set your Part B premium two years later. And a large enough one puts you in Medicare’s top surcharge band.
$20,000 a year on $1.7 million of houses
A 68-year-old contractor called The Ramsey Show on Monday with that kind of property. Four years ago, he bought three acres with three houses on them, and he lives in the back one. “I’m bringing in seven grand a month and paying out five grand a month in taxes and insurance,” he said, which leaves him about $20,000 a year before maintenance. Asked what he could sell the houses for, he said: “The appraiser about three weeks ago said like $1,700,000 and I owe $600,000.”
Jade Warshaw was blunt: “I just feel like the ROI sucks right now because you got 1.7 million in properties making 20 grand a year.” She suggested he sell and invest about $1.2 million, the proceeds plus his $140,000 in stocks and his gold, figuring 8% a year would bring in $96,000 on average.
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But the $1.1 million he’d walk away with and the gain the IRS taxes are two different numbers. The gain is the sale price less his basis, which is generally what he paid, so the $600,000 he owes doesn’t shrink it at all. He didn’t say what he paid four years ago, so let’s say his basis is $700,000, which makes the gain $1 million.
Medicare looks back two years
Medicare charges higher earners a monthly surcharge on top of the standard Part B premium, set from the tax return from two years before. So a sale that closes this year goes on his 2026 return, which sets his 2028 premium, when he’ll be 70. At 2026’s figures, the top band starts at modified AGI of $500,000 for a single filer or $750,000 for a joint one, and it adds $487.00 a month, for a Part B premium of $689.90 in all. A $1 million gain clears both lines on its own, so it doesn’t matter how he files.
That’s $5,844 a year in Part B surcharges, and $689.90 a month is more than a third of the $2,000 he said Social Security pays him. A Part D drug plan carries its own surcharge, too. And my assumed basis barely matters: as a single filer, he’d need his gain plus other income under $500,000 to leave the top band, and the next band down still adds $446.30 a month.
The tax on the gain comes first
The surcharge is the smaller part of the bill. A long-term gain is taxed at 0%, 15% or 20%, depending on where it falls in taxable income. Say he files single, and his rent and Social Security about cancel out his deductions, so his taxable income is just the $1 million gain. Then, at 2026’s brackets:
- The first $49,450 is taxed at 0%
- The next $496,050, up to $545,500 of taxable income, is taxed at 15%: $74,407.50
- The last $454,500 is taxed at 20%: $90,900
That’s $165,307.50 of capital gains tax. On top of it comes the 3.8% net investment income tax, on the lesser of his investment income or his modified AGI over $200,000. With a $1 million gain, both are at least $800,000, so that tax comes to at least $30,400.
Add a year of the Part B surcharge, and he’s out about $201,550 between capital gains tax, the 3.8% tax and the surcharge. Ouch.
A sale he chooses doesn’t qualify as a life-changing event
Social Security will set the surcharge from a newer, lower income when someone’s income drops after one of eight life-changing events, using form SSA-44. “Loss of income-producing property” is on that list, which sounds made for a landlord selling his rentals. Unfortunately, Social Security’s rules say that loss can’t come at the beneficiary’s own direction: it has to come from circumstances beyond his control, so a sale he chooses doesn’t count.
What he can choose is the year. A sale that closes in December goes into 2028’s premium, and one that closes in January goes into 2029’s, when he’ll be 71. Either way, the gain shows up on one year’s return, so it sets one year’s premium.
Sell, with the bill in the budget
Frankly, I think Warshaw is right that he should sell. Netting about $20,000 a year on roughly $1.1 million of equity is a thin return, and he agreed he’d rather not deal with tenants. But the $1.2 million she pictured working in the market is closer to $1 million once he’s paid about $200,000 of federal tax and surcharges, and at her 8%, that’s about $80,000 a year on average. That’s still four times what the rentals pay him, though selling all three means paying rent, which he put at two or three grand a month. So I’d look hard at Warshaw’s other idea: splitting off his own house and selling the other two, for a smaller gain.
Medicare hasn’t set 2028’s figures yet. CMS put out this year’s on Nov. 14, 2025, so the bands and surcharges a sale this year would show up in should arrive in the fall of 2027.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
