Will selling my house affect my Social Security benefits? Capital gains tax concerns before filing

Capital gains from selling your house don't count toward the Social Security earnings test. The earnings test only looks at wages or self-employment income. So you don't need to worry about your benefits being reduced when you start collecting.HOWEVER - and this is important - that capital gain WILL likely affect your Medicare IRMAA surcharges for 2 years after you report that income on your taxes. IRMAA looks at your MAGI (Modified Adjusted Gross Income) from 2 years prior, and capital gains are definitely included in that calculation.

Thank you for clarifying! I hadn't thought about the two-year lookback for Medicare premiums. Do you know roughly how much extra I might end up paying for those 2 years with the additional $125k in capital gains income? And I assume after those 2 years, my premiums would go back to normal levels based on my regular retirement income?

capital gains don't affect social security but they DO affect how much tax you pay ON your social security benefits. if your income including half your SS benefits plus that capital gain goes over $25k (for single) or $32k (married) then up to 85% of your benefits become taxable. happened to my sister last year and she got killed on taxes!

This is an important point that many people miss. The capital gain will temporarily increase your

That's really helpful - I need to talk to my accountant about timing this better. Maybe I should delay starting SS until after I recognize the house gain? Or would it be better to take SS earlier and just deal with one year of higher taxation?

when i sold my house i had to wait on hold with SSA for 3.5 HOURS to get answers about this!!! they kept transferring me between departments and then i got disconnected! so frustrating.

I had the same problem trying to reach SSA about a similar issue. Finally I used a service called Claimyr (claimyr.com) that gets you through to an agent without the endless hold times. Saved me so much frustration! They have a video showing how it works: https://youtu.be/Z-BRbJw3puU - definitely worth it when you need actual answers from a real person at Social Security.

omg thank u!! gonna try this next time for sure. anything to avoid those hold times!

My situation was different but kinda the same...I inherited a house in 2024 and sold it for $420k profit. Then I started my SS retirement 3 months later. The SSA didn't care about the house money at all for calculating my benefit amount. The rep told me house sales have nothing to do with the earnings test. Only work income matters for that.

This is correct. The Social Security earnings test only applies to wages and self-employment income, not unearned income like capital gains, interest, dividends, or other investment income. The SSA is only concerned with earnings from actual work when determining if your benefits should be reduced before you reach full retirement age.However, as others have pointed out, the capital gains can still affect the taxation of your benefits and potentially your Medicare premiums through IRMAA. It's a good idea to speak with a financial advisor who specializes in retirement planning to optimize your strategy.

Yeah the tax part was painful. Almost had a heart attack when I saw how much I owed! Wish I'd spaced things out better.

wait I'm confused...doesnt SS look at your highest earning years when figuring your benefit? so wouldn't a big capital gain increase your benefit amount???

No, Social Security only considers earned income (wages reported on W-2s or self-employment income reported on Schedule SE) when calculating your benefit amount. They look at your highest 35 years of earned income, adjusted for inflation. Capital gains, interest, dividends, pension income, rental income, etc. are not included in the calculation of your benefit amount.

oh! good to know. all these years i thought ALL income counted. thx for explaining!

Two important planning considerations for your situation:1. If you haven't claimed Social Security yet, consider whether it makes sense to sell your home and recognize that capital gain in a different tax year than when you begin receiving Social Security. This could help minimize the tax impact by avoiding having both large capital gains and Social Security income in the same tax year.2. For IRMAA planning, remember that you can file Form SSA-44 for a life-changing event if your income drops substantially after selling your home. If your income will be significantly lower in subsequent years, this form allows you to request a reduction in your Medicare premium surcharges rather than waiting for the two-year lookback period to reset automatically.

Thank you for mentioning Form SSA-44! I had no idea this existed. My income will definitely be much lower after selling the house since I'll be fully retired. This could save me a lot on Medicare premiums!

my neighbor got AUDITED by the IRS after selling her house and starting SS the same year!!!!!

An audit doesn't necessarily indicate wrongdoing - it could simply be that the large change in income triggered an automated review. This happens routinely with significant financial events. As long as all income is properly reported and documentation for the house sale (including basis adjustments and qualification for exclusions) is maintained, there shouldn't be any problems with an audit.

she said it was a NIGHTMARE with all the paperwork they wanted!! took her months to get it all together

Thanks everyone for all the helpful information! Based on your advice, I'm thinking I should:1. Separate the house sale and my Social Security start date into different tax years if possible2. Keep detailed records of all home improvements for calculating my adjusted basis3. Prepare for potentially higher Medicare premiums for 2 years after the sale4. Remember that Form SSA-44 might help reduce those premiums if my income drops significantly5. Be aware that more of my Social Security could be taxable in the year I sellI'll definitely consult with my financial advisor about the optimal timing between these events. This community has been incredibly helpful!

Great summary @Demi Lagos! You've got a solid plan. One additional tip - if you're doing major home improvements or repairs before selling, keep ALL those receipts as they can be added to your cost basis and reduce your taxable capital gain. Things like new roof, HVAC, flooring, etc. can really add up over 22 years of ownership. Also consider getting a pre-listing home inspection to identify any issues you might want to address beforehand - those repair costs can also be deductible. The more you can reduce that $375k gain, the less you'll have to worry about the tax implications!

Just wanted to add another consideration for your planning - if you're thinking about separating the house sale and SS start dates, also consider the timing of any major medical expenses or other deductions you might have. Since that capital gain will push you into a higher tax bracket temporarily, it might be strategic to bunch certain deductible expenses (like medical procedures, dental work, etc.) into the same tax year as the house sale to help offset some of that income. Also, if you're charitably inclined, that could be a good year for larger charitable donations since you'll get more tax benefit from the deductions. Your CPA can run some scenarios to see if the timing makes sense!

One thing I haven't seen mentioned yet is the potential impact on state taxes, which varies dramatically by state. Some states don't tax capital gains at all, while others tax them as ordinary income. If you're planning to move as part of your downsizing, the timing of your move relative to the house sale could make a significant difference in your overall tax burden. For example, if you're moving from a high-tax state like California or New York to a no-income-tax state like Florida or Texas, you might want to establish residency in the new state before selling. Just another layer to consider in your timing strategy - definitely worth discussing with your tax advisor since the state tax savings could be substantial on a $125k taxable gain!

One more consideration that might help with your planning - if you're concerned about the Medicare IRMAA surcharges, you could potentially use a 1031 like-kind exchange to defer some of the capital gains if you're buying another property. While this is more commonly used for investment properties, there are some scenarios where it might apply to primary residences if you're moving to a new home. However, this gets pretty complex with the primary residence exclusion rules, so you'd definitely need to work with a tax professional who specializes in real estate transactions. Another option some people use is an installment sale if you're selling to a buyer who's willing to structure it that way - this spreads the capital gains over multiple years rather than recognizing it all at once. Both strategies have pros and cons, but they're worth exploring if minimizing that income spike is a priority for your Social Security and Medicare planning.

I went through a very similar situation about 3 years ago when I sold my family home after 28 years. Had about $180k in capital gains after the exclusion. Can confirm what others have said - it absolutely did NOT affect my Social Security benefits calculation or the earnings test since I wasn't working anymore. BUT the Medicare IRMAA hit was real - paid an extra $2,400 total over those two years in higher premiums. The good news is my premiums did go back to normal once the lookback period passed. One thing I wish I'd known earlier - you can actually appeal the IRMAA if your income drops significantly after the house sale year using that SSA-44 form someone mentioned. I didn't find out about that until it was too late! Also definitely keep every receipt for home improvements - I found documentation for about $35k in improvements over the years that reduced my taxable gain. The key is having good records going back decades.

As someone who works in retirement planning, I want to emphasize a few key points that haven't been fully addressed yet. First, the timing strategy everyone's discussing is crucial - but also consider that delaying Social Security past your full retirement age (which sounds like it might be 67 for you) gives you delayed retirement credits of 8% per year until age 70. If you're financially able to delay SS until after recognizing the capital gain, you could potentially get a higher monthly benefit for life while also separating the tax events. Second, regarding the IRMAA impact - the income thresholds change annually, so a $125k taxable gain might not push you into the highest surcharge brackets depending on your other retirement income. For 2024, the first IRMAA tier starts around $103k for single filers, but there are multiple tiers with different surcharge amounts. Finally, don't forget about potential state tax implications if you're moving states as part of downsizing - this could be a huge factor in your overall tax planning. Definitely work with a fee-only financial planner who can model different scenarios for you!

I wanted to add something that hasn't been mentioned yet - if you're planning to do any major home improvements or repairs before listing the house, make sure you understand the difference between improvements (which add to your cost basis) and repairs (which generally don't). Things like a new roof, windows, HVAC system, or adding a deck are improvements that reduce your taxable gain. But routine maintenance like painting, fixing a leaky faucet, or replacing broken tiles are just repairs and don't count toward basis. The IRS is pretty specific about this distinction. Also, if you're doing any work specifically to prepare the house for sale (like staging, minor cosmetic updates, etc.), keep those receipts separate - some of those might be deductible as selling expenses rather than basis additions, which could also help reduce your taxable gain. Every dollar counts when you're looking at a $125k taxable gain! Your tax preparer can help you categorize everything properly when you file.