Author Topic: How to handle large long term capital gain with respect to ACA Medicaid  (Read 2235 times)

swampwiz

  • Bristles
  • ***
  • Posts: 451
Here is my situation.  I am early-retired bachelor living a low-cost existence, generating taxable income via Roth conversions to take advantage of the 0% federal tax rate, and thus am enrolled in the ACA Medicaid expansion.  And although I have tried to do all my investing within my IRA, I ended up making an investment in a non-IRA that might be quite lucrative, such that as a long-term capital gain, I would use up the 0% long-term capital gain bracket.  However this income level is at about $40K, which is obviously much higher than the cutoff for Medicaid.

So I'm thinking about doing this:  At the beginning of the year, when I will want to get out of a certain amount of position in this investment, I will sell up to a point at which I exhaust all my carried over capital loss and get me just shy of the Medicaid cutoff (i.e., if I had no other income events for that year, my income would be at that just-shy level), and then sell the rest right at the end of the year.  As it would be the end of the year, it would have no bearing on my Medicaid eligibility for that year (i.e., I would have a window of a week or so to inform the Exchange about my new income, but the year would run out before then), and it would not have any bearing on the eligibility for the next year, since the income events of the previous year would not be expected to continue into that next year.  I would think that I should be able to prove that the income events of that year were exceptional events that should not be expected to be repeated; at the very least, I would be able to do my taxes on Jan 2 and be able to give incontrovertible documentation of having low income again.

So what do you all think?  (BTW, when I had facial hair, it was mostly of the Amish style, so I am Mr. Money Bearder.)

jim555

  • Handlebar Stache
  • *****
  • Posts: 2072
Medicaid is based on monthly income, not yearly.  Worst case you become ineligible for the month you received the income over the monthly limit.  As long as the gain is not a periodic event it should not effect things for more than a month.

swampwiz

  • Bristles
  • ***
  • Posts: 451
I've being some research.  It turns out that the law states that the applicant must be deemed as eligible as per the more broader in his favor by the state Medicaid rule and the Exchange rule.  The Exchange rule is that the spikes in income during the year don't matter, and it's the expected annual income that is the key.  Therefore I think that my scheme would work as I could plausibly conclude at any time that I do not expect any additional income for the year, and only count what has been done - and to do this on a monthly basis, making any income in December meaningless.

jim555

  • Handlebar Stache
  • *****
  • Posts: 2072
The law was written with two conflicting ideas, yearly Exchange and monthly Medicaid.  The two are exclusive.  The only time "lumpy" income might be smoothed for Medicaid is for a recurring periodic event, for example, quarterly dividends, they may decide to consider these as monthly income and create a "budget".  Since your example is a one time event it does not apply.  So you become ineligible for one month.  Report the income the next month, after the fact, it will have no impact since they don't care about anything but the current month.  So you are ineligible for a month that has already passed and it is a moot point.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
You could also just sell a portion of your investment each year to keep yourself at the desired income level. So instead of doing IRA conversions, sell a portion of your taxable investment that gets your income to the desired level. Doing it over multiple years will let you manage the amount of gain that you want to realize. You could also just never sell the investment and never worry about your taxable income. Or wait until you are on Medicare and your income doesn't matter so much. Up to you.