What is used to define income (rentals) for health insurance subsidy?

[Dawn]

My husband and I own rental properties. I am SO ready to leave the real world and live off of our income. My husband's health insurance went up $70 this month to over $400/month with a $5k deductible. If I leave my job, our modified adjusted income will be about $7,000 and insurance would be free. Is that correct? Or do I have to add rental incomes back in? We gross around $80k/year. If the tax man won't come after me over this, then I am ready to leave my job! No one, not my insurance agent or accountant can answer this because of the gray areas with the ACA.

[Mr. Sharma]

From healthcare.gov: 
Modified Adjusted Gross Income (MAGI)
Generally, modified adjusted gross income is your adjusted gross income plus any tax-exempt Social Security, interest, or foreign income you have.

This would include net rental income amounts as reported on your tax return.

Also keep in mind, each state is different.  At certain income levels, there may be a state program that you qualify for instead of the health insurance subsidy.  The healthcare website will tell you if you should apply for those programs instead of the health insurance subsidy based upon the estimated income amounts you enter online. 

[forummm]

It is a little complicated. The insurance premium tax credits are only for those 100-400% FPL. For a family of 2, it sounds like you are well below that. In states that expanded Medicaid, you can get that at any income below 138% FPL. But if you qualify for Medicaid in another way (disability, etc), it gets a little more complicated. Since you didn't mention your state, it's hard to say more at this point.

If your state didn't expand Medicaid, than your income would be too low to qualify for a tax credit.

[Dawn]

Thank you for all the responses!
Our state, NC, didn't expand Medicaid and we wouldn't qualify because we own so many properties. I wouldn't want to go that route anyway.
If our full rental income is counted, then we'll be paying close to $1,000 each month. That bites! I really want to retire but I just don't know what to budget for insurance.
Oh what to do.........

[forummm]

From everything I've read rental income DOES count as MAGI towards ACA subsidies so you'll probably have to consider that if deciding to leave the work force. Also, as other's have said, if your income is below the 138% FPL (which is around $15,500/year for a single person)  then you can't get premium subsidies and, unless you are in a state that has expanded Medicaid or something similar, you will have to foot the entire cost of your medical insurance yourself.

Not quite. It's complicated.

If your state DOES NOT expand Medicaid, then you can get tax credits from 100-400% FPL.
If your state DOES expand Medicaid, then you can get tax credits from 138-400% FPL, and Medicaid from 0-138% FPL.

Thank you for all the responses!
Our state, NC, didn't expand Medicaid and we wouldn't qualify because we own so many properties. I wouldn't want to go that route anyway.
If our full rental income is counted, then we'll be paying close to $1,000 each month. That bites! I really want to retire but I just don't know what to budget for insurance.
Oh what to do.........

For Medicaid expansion, there is no asset test. NC will probably expand Medicaid in the next few years.

You can find out exactly what current private insurance policies cost by looking at https://www.healthcare.gov/find-premium-estimates/

If you want to qualify for a tax credit, just increase your income to above 100% FPL. You can use rental income, dividends, capital gains, and then convert just enough 401k/IRA to Roth to boost your income to the necessary level. You can report any taxable income you have, including mowing lawns, babysitting, etc.

But with $1k/mo in rental income, you only need to come up with about $4k for the year in other income to hit the 100% FPL. Should be easy.

[johnhenry]

No one, not my insurance agent or accountant can answer this because of the gray areas with the ACA.

I'd be looking for a different insurance agent and accountant!  :)

Only half joking because I wouldn't really call these "gray areas".   Granted, the ACA subsidy requirements are slightly complicated, but not compared to insurance requirements in general or the tax code in general.  A professional in either field should have a solid grasp of this by now.

If you are anywhere close to retirement, you (and your accountant) should have a very solid grasp of how your rental income is likely to affect your taxes.

[teen persuasion]

From everything I've read rental income DOES count as MAGI towards ACA subsidies so you'll probably have to consider that if deciding to leave the work force. Also, as other's have said, if your income is below the 138% FPL (which is around $15,500/year for a single person)  then you can't get premium subsidies and, unless you are in a state that has expanded Medicaid or something similar, you will have to foot the entire cost of your medical insurance yourself.

Not quite. It's complicated.

If your state DOES NOT expand Medicaid, then you can get tax credits from 100-400% FPL.
If your state DOES expand Medicaid, then you can get tax credits from 138-400% FPL, and Medicaid from 0-138% FPL.

Thank you for all the responses!
Our state, NC, didn't expand Medicaid and we wouldn't qualify because we own so many properties. I wouldn't want to go that route anyway.
If our full rental income is counted, then we'll be paying close to $1,000 each month. That bites! I really want to retire but I just don't know what to budget for insurance.
Oh what to do.........

For Medicaid expansion, there is no asset test. NC will probably expand Medicaid in the next few years.

You can find out exactly what current private insurance policies cost by looking at https://www.healthcare.gov/find-premium-estimates/

If you want to qualify for a tax credit, just increase your income to above 100% FPL. You can use rental income, dividends, capital gains, and then convert just enough 401k/IRA to Roth to boost your income to the necessary level. You can report any taxable income you have, including mowing lawns, babysitting, etc.

But with $1k/mo in rental income, you only need to come up with about $4k for the year in other income to hit the 100% FPL. Should be easy.

I'm not sure the bolded is correct.  I understood that the ACA credits were only 138% - 400% FPL, so if you were in a state that did not expand Medicaid, you fell into a gap between 100% and 138%.  No credit and no Medicaid.

[Bob W]

No one, not my insurance agent or accountant can answer this because of the gray areas with the ACA.

I'd be looking for a different insurance agent and accountant!  :)

Only half joking because I wouldn't really call these "gray areas".   Granted, the ACA subsidy requirements are slightly complicated, but not compared to insurance requirements in general or the tax code in general.  A professional in either field should have a solid grasp of this by now.

If you are anywhere close to retirement, you (and your accountant) should have a very solid grasp of how your rental income is likely to affect your taxes.

+1

I also think that with rental there are many options.  For instance,  I'm in real estate.   I deduct around 20,000 miles per year in driving.  It seems I'm never in the car and not looking at real estate.  I mean never.  It is everywhere you look. 

You could also do some refiing (before your retire).  There are many options.  If you refi and pull out a lot of money now.   You could balance your cash flow so that there is maybe 20K in rental income after taxes and expenses.  You could live off what you pulled out for a long, long time, if not forever.   

I really think you need a CPA who specializes in rental, passive income and tax avoidance.   You need to do more research on your own.  But for a decision this big, please find yourself a real CPA pro to consult and be willing to pay a decent consultation fee.  You also need to deal with a bank that understands rentals very well.  Some banks don't even treat rental profit as income!

You can do this and you can make it a big win!

[Dawn]

Thanks again for all of your responses. I went to the site and at $40K a year, it says I can get subsides - I just don't know what is counted as my income. My MAGI is so low because of depreciation, expense, etc. We gross around $80K from rentals and net around $7K. That is from last years taxes and with my income we gross @$130 so not sure if all the numbers stay the same.
So the only real question I have is - do they only use MAGI or do I add back in rental income somehow?? There's a big difference between the two!
Spartana said that a high asset person may need to fund their own but I really don't want to go on Medicaid if I can help it....I just don't want to pay $1,000 a month. We are in our mid 40's now and want to get out of rat race.
Thanks again for your patience on helping me understand this.
I don't want fear of rising insurance premiums to be what keeps me from early retirement!!

[teen persuasion]

http://obamacarefacts.com/insurance-exchange/calculating-tax-credits.php

There is a section about calculating MAGI. It doesn't mention adding rental income, just IRA deductions, student loan interest or tuition deductions, employer paid adoption, EE bond interest used for education, and excluded foreign income.

[forummm]

It's 100-400% FPL in non-expansion states.

http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-the-Premium-Tax-Credit

From everything I've read rental income DOES count as MAGI towards ACA subsidies so you'll probably have to consider that if deciding to leave the work force. Also, as other's have said, if your income is below the 138% FPL (which is around $15,500/year for a single person)  then you can't get premium subsidies and, unless you are in a state that has expanded Medicaid or something similar, you will have to foot the entire cost of your medical insurance yourself.

Not quite. It's complicated.

If your state DOES NOT expand Medicaid, then you can get tax credits from 100-400% FPL.
If your state DOES expand Medicaid, then you can get tax credits from 138-400% FPL, and Medicaid from 0-138% FPL.

Thank you for all the responses!
Our state, NC, didn't expand Medicaid and we wouldn't qualify because we own so many properties. I wouldn't want to go that route anyway.
If our full rental income is counted, then we'll be paying close to $1,000 each month. That bites! I really want to retire but I just don't know what to budget for insurance.
Oh what to do.........

For Medicaid expansion, there is no asset test. NC will probably expand Medicaid in the next few years.

You can find out exactly what current private insurance policies cost by looking at https://www.healthcare.gov/find-premium-estimates/

If you want to qualify for a tax credit, just increase your income to above 100% FPL. You can use rental income, dividends, capital gains, and then convert just enough 401k/IRA to Roth to boost your income to the necessary level. You can report any taxable income you have, including mowing lawns, babysitting, etc.

But with $1k/mo in rental income, you only need to come up with about $4k for the year in other income to hit the 100% FPL. Should be easy.

I'm not sure the bolded is correct.  I understood that the ACA credits were only 138% - 400% FPL, so if you were in a state that did not expand Medicaid, you fell into a gap between 100% and 138%.  No credit and no Medicaid.

[forummm]

I believe Forummm is correct. State's that haven't expanded Medicaid will allow MAGI levels of approx. $11,000K (100% FPL) to be qualifying for tax credits but I don't know if they count assets at that level to qualify for Medicaid but I believe they do at levels under 100%. In states with expanded Medicaid the income level is approx. $16,000 (138% FPL) for tax credits or subsidies, below that amount you can go on Medicaid regardless of your assets. Since the states that did not expand Medicaid may asset and means test, then a low income but high asset person may have to fund their own health insurance as they may not qualify for Medicaid if below the 100% FPL.

It's complicated. Asset tests still exist for certain Medicaid programs. Even in states that expand Medicaid. The Medicaid benefits program is just one of many ways to qualify for Medicaid. If you're qualifying for the Medicaid expansion benefits based on income (not disability, etc) in an expansion state, then there's no asset test.

[forummm]

Thanks again for all of your responses. I went to the site and at $40K a year, it says I can get subsides - I just don't know what is counted as my income. My MAGI is so low because of depreciation, expense, etc. We gross around $80K from rentals and net around $7K. That is from last years taxes and with my income we gross @$130 so not sure if all the numbers stay the same.
So the only real question I have is - do they only use MAGI or do I add back in rental income somehow?? There's a big difference between the two!
Spartana said that a high asset person may need to fund their own but I really don't want to go on Medicaid if I can help it....I just don't want to pay $1,000 a month. We are in our mid 40's now and want to get out of rat race.
Thanks again for your patience on helping me understand this.
I don't want fear of rising insurance premiums to be what keeps me from early retirement!!

MAGI is used for calculations to determine eligibility for tax credits and for eligibility for expanded Medicaid. If you know your MAGI, then you know what you're eligible for. See this Q&A (and #7 in particular) for more info: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-the-Premium-Tax-Credit

Perhaps you will feel more informed about this once you complete your 2014 taxes and you can see how the MAGI calculation would work for you with your real income information and the new IRS forms for 2014.

I repeat my earlier advice that you just do what it takes to increase your income to exceed 100% FPL so you can get a tax credit. IRA/401k conversions to Roth, earn a little extra money, take some capital gains, claim fewer deductions, pay off a loan to have less interest to deduct, etc.

The Medicaid expansion benefit plan provides essentially the same benefits as you would get through a private plan on the Health Insurance Marketplace (healthcare.gov). But since you're in NC and they have not expanded Medicaid yet, you don't have that option yet.