Sale of Assets to Qualify for Medicaid

[TaxGuyBill]

"'loss of income producing property'."

Does not seem to meet the definition from the form instructions.

Thanks for the correction. I just looked that titles of the reasons - I didn't dig into the details.

[Forensicacctnt]

To: TaxGuyBill and others, Thanks for the information. The basis of the land (sorry I did not put in details) in 1959 when it was inherited was $22,000 (40 acres @ $550/acre). The sale price was approximately $395,000, so the long term gain was $373,000. The couple's daughter handled more of the details. I have been talking with her father, my client. Based on the feedback here they are going to have a big tax bill for having to report this transaction.

[JON]

Does Medicaid give out that specific of advice??? They had to pay the tax on the gain plus tax on the annuity? I see that medicaid always has a look back (3 to 5) and used to pull back in actions that were done for the purpose of qualifying for Medicaid. Maybe they are a good source for avoiding not qualifying for medicaid.

[Rapid Robert]

"will cause them to pay a higher Medicare premium? The couple is in their 80's."

What does their age have to do with any of this? (other than they are on Medicare). Obviously they can afford it, and it would only be for one year.

"'loss of income producing property'."

Does not seem to meet the definition from the form instructions.

"You or your spouse experienced a loss of income-producing property that was not at your direction (e.g., not due to the sale or transfer of the property). This includes loss of real property in a Presidential or Gubernatorially-declared disaster area, destruction of livestock or crops due to natural disaster or disease, or loss of property due to arson, or loss of investment property due to fraud or theft."

"Medicaid required them to sell it?"

Medicaid did not require them to do anything.

[TaxGuyBill]

Yes, it will be taxable.

By default, yes, it will increase Medicare premiums. But they may be able to apply for an exception because of 'loss of income producing property'.

https://www.ssa.gov/forms/ssa-44.pdf

I'm curious about the four year annuity. I know that in some cases special annuities can be used in conjunction with Medicaid, but being dispersed over only four years seems rather odd to me (unless they spend that money fast, I would think the high disbursements would put them over the asset limit again).


On another note, you said the "gain" was $375,000, they bought an annuity for $300,000 and had $75,000 left over. Did the land have zero Basis, and the total sale price was $375,000?

[Forensicacctnt]

In order to quality for Medicaid (wife is in a nursing facility), they had to declare their assets. One of their assets they were told by Medicaid to sell was land. The land was inherited by the wife and was rented each year as farm land. When they had to sell the land in 2022 the gain was $375,000. Medicaid required the couple to purchase an annuity of $300,000. The annuity is to be disbursed over 4 years. The couple will pay taxes on the annuity payments each year. The main concern I have is does the sale of land have to be reported as a long-term capital gain since Medicaid required them to sell it? They did retain the balance remaining of $75,000 from the sale proceeds. The second concern is if it has to be reported on their tax return, then the total income for 2022 will cause them to pay a higher Medicare premium? The couple is in their 80's. I hope there is some provision in the tax law that does not require them to report all the gain on the land sale. I appreciate any assistance on this matter.