I am looking to sell my home, but will the sale of my home affect my Obama care? If you are searching for answers to this question, then you are in the right place.
Your home is one of the biggest and proudest purchases in your life. You invest a lot of money in your home to make it look good.
But a time comes when you might want to sell your home, hopefully, due to good news (buying a bigger one, relocating to another city), or perhaps sometimes bad news (financial difficulties).
Will the sale of my home affect my Obama Care? This article discusses everything related to the sale of house proceeds, their impact on ObamaCare, and taxation.
What is Obama Care?
There are many Americans who are unemployed or have low-paying jobs. Some cannot work because of disability or family obligations, while others cannot get decent health insurance because of their chronic health condition.
Thankfully, the Obama care or Affordable care act was signed into law in 2010 to provide affordable health insurance to almost every American.
You might like to read: Medicare – All You Need To Know Before Turning 65
Eligibility Of Obama Care Subsidy
- You should be a citizen of the United States
- You should be staying currently in the United States.
- You should not be currently incarcerated
- Your income level should be between 100 percent to 400 percent of the federal poverty line.
In 2022, the federal poverty lines for eligibility to obamacare (in the 48 contiguous states) are as follows:
|Household size||100% of FPL (2022)||400% of FPL (2022)|
Note: the guidelines for Alaska and Hawaii are slightly higher.
Will the Sale of My Home Affect Obama Care?
The eligibility of Obama care is decided based on your income level in the year your health plan covers you. The Obama care subsidies are tax credits available to people with net income in between 100 to 400 percent of the Federal Poverty Line.
So, if your net income goes above 400 percent of the Federal poverty line, you are not eligible for Obamacare. So, will the sale of my home affect my Obama care? Since the proceeds of the home will show up in the income of the seller, these purchases will likely impact your Obamacare premiums.
You are required to include the gain from the sale of your home as taxable income. However, if the gain from your primary home is under $250,000 (for single individuals) and $500,000 for married couples then it will not affect Obama care.
But, if it goes higher then you need to see whether you are crossing the 400 percent Federal limit for eligibility for Obama care.
Do I Need To Pay Obama Care Tax When I Sell Home?
You usually get many offers when you put your house for sale on the market. Most likely, you will sell the house at a much greater price than you have bought before for many years. You may be wondering whether you need to owe IRS any taxes or Obama care.
The health law generally imposes tax if your adjusted gross income(AGI) is above $200,000 for single individuals and $250,000 for a married couple. About 95 percent of the people have less than AGI. So they are exempt from the law.
However, a primary residence is a special case as the first $250,000 for a single and $500,000 for a married couple of capital gain will not affect your Obama care. But profits above $250,000(for single) and $500,000(for married) have to pay taxes.
The IRS defines the primary residence as the one you have owned and stayed there for at least two of the five preceding years before selling a house in the market. However, these two years don’t need to be consecutive, and you don’t have to live in your home on the date of sale.
For instance, a married couple bought a house For $200,000 and sold it after many years for $1,000,000.So the total capital gain is $800,000, which is not subjected to taxes.
So the first $500,000 will be tax-free, and the remaining amount, i.e., $300,000, will be imposed on capital gain tax. Again there will be a 3.8 percent additional tax on $300,000 to go to Obama care.
You might like to read: How Do Medicare Advantage Plans Work?
How Much Is Capital Gain Tax?
The Capital gain tax depends on your income and how long you have owned your home. The IRS classifies the capital gain tax into two types.
The first one is the short-term capital gain which occurs if you have owned a house for at least one year or less. The second one is the long-term capital gain which occurs if you have owned your home for more than one year.
The majority of people fall in the second category. A long-term capital tax gain is taxed at 0,15 and 20 percent rates, depending on your taxable income.
I am listing below a table that shows capital gain tax brackets (2020) to help you determine the amount you need to pay as taxes while selling a home.
|Long term capital gain tax rate||Single fillers||Married(filling jointly)|
|15%||$40,000 -$441,450||$80,000 -$496,050|
|20%||Above $441,450||Above $496,550|
Now I am giving you an example: Suppose a married couple owned the house at $200,000 and sold the house after eight years at $900,000. Then the capital gain is $700,000. As stated above, the first $500,000 will be tax-free.
Any capital gain tax will impose on $200,000. Now, if the married couple file jointly that their taxable income is $100,000, then the tax imposed on them will be 15 percent( according to the table), So the married couple can expect almost $30,000 (15 percent of $200,000) as capital gain tax from the sale.
How Can I Avoid Capital Gain Tax While Selling My Home?
#1. Tax Loss Harvesting
One popular strategy to avoid capital gain tax is tax-loss harvesting which means you need to sell your stocks or fund units at a loss to reduce capital gain tax. For instance, you have a taxable capital gain of $50,000 while selling your home.
Let’s say you had bought a mutual fund a few years back, and its worth is $20,000 less than you paid it. You can sell the mutual fund to reduce your taxable capital gain from $50,000 to $30,000.
#2. Don’t Sell
Most people sell their old home to move to a new one. However, the best way to avoid capital gain taxes on any asset is to hold it for your entire life. After your death, your heirs will inherit the house and receive a step-up basis.
It means the home’s cost basis will be reset after your death, thereby avoiding capital gain taxes you would have paid if you sold your home during your lifetime.
Are you selling your home? If yes, then the best way to avoid a capital gain tax bill is by 1031 exchange which means swapping one investment property to another within certain time limits.
If you are a married couple and your AGI exceeds $250,000, and you sell your house with a profit above $500,000, you will likely end up not being eligible for Obamacare, and instead will need to pay capital gain tax and Obama care taxes.
I hope this article contained all the information you needed to understand how the sale of your home impacts your Obamacare. Please don’t forget to share it with others searching for similar information.
You can ask us your questions about taxes while selling your home in the comments section. We will get back to you with answers from experts to solve all your doubts