No home sale tax perk for nomads
Dear Liz: I was given a condominium, which I’m renting out while I live overseas, traveling from country to country. I understand that when I sell the condo, I can exclude up to $250,000 of home sale profits if the property is my “primary residence” for at least two of the last five years. But how is primary residence established? I have heard that the Internal Revenue Service looks at the address on your tax returns, on your voting registration and on file with the Department of Motor Vehicles. I list the condo’s address for voter registration, but with the IRS and DMV, I use my mail forwarding address. Will that keep me from establishing the condo as my primary residence?
Answer: What’s keeping you from establishing the condo as your primary residence is the fact that it’s not your primary residence. Someone else is living there and paying you rent.
If you want to take advantage of the home sales profit exemption, you need to actually occupy the home. You’re allowed “short, temporary absences” but not the vagabond life.
Delaying Social Security benef its
Dear Liz: I reached my full Social Security age (66) in December 2020. I’ve been waiting until age 70 to start benefits so I can get the 8% annual delayed retirement credits and maximize my benefit. However, if the 2023 cost of living increase will be 10.5%, should I start benefits this year? Does someone need to be on Social Security for a full year before being eligible for the COLA?
Answer: Your benefit will get the cost of living increase whether you’ve started receiving checks or not. In fact, it’s been getting those increases since you turned 62 and became eligible. So applying now just means giving up two years’ worth of delayed retirement credits.
Avoiding Medicare penalties
Dear Liz: I have taken multiple in-person and online educational classes about Medicare before my 65th birthday. What I learned from these classes was that the law demands people register for Medicare Part A when we turn 65, whether we are working or not. I work full time and do not plan to retire until 70. At the time of my retirement I will apply for Medicare Part B and purchase supplemental insurance.
Answer: It’s wonderful that you made the effort to educate yourself about Medicare, which can be incredibly complicated.
However, you got the wrong lesson about what’s required, since there’s no law that forces people to sign up for any part of Medicare, including Part A, which covers hospitalizations and which is typically premium-free.
The reason most people should sign up at age 65 has to do with penalties. People who delay signing up for Medicare Part B, which covers doctor’s visits, or Part D, which covers prescriptions, can face permanent premium penalties unless they qualify for certain exemptions.
One of those exemptions is having qualifying health insurance coverage from a job, either your own or your spouse’s.
You can find more details medicare.gov/basics/ costs/medicare-costs/ avoid-penalties.