Capital gains and IRMAA

Why a 0% tax gain can still cost you

Long-term capital gains have their own tax brackets, and for retirees with modest taxable income part or all of a gain may be taxed at 0%. That can make selling appreciated investments look free. For IRMAA it is not. MAGI starts from adjusted gross income, and adjusted gross income includes every dollar of capital gain, whatever rate it is taxed at. A gain taxed at 0% can still be the dollar that crosses a cliff.

The reverse is also true. Qualified dividends and long-term gains are taxed gently, but they sit in MAGI right next to wages and IRA withdrawals. When you plan a sale, look at two numbers: your tax bracket and your IRMAA headroom.

How much gain fits under the next cliff

Gain harvesting means selling winners on purpose to reset their cost basis, often in a low-income year. The useful limit for a Medicare enrollee is the headroom to the top of the current tier. The table uses the 2026 brackets.

The joint costs assume both spouses are on Medicare. "Gain that fits" is the total of all extra income for the year, so if you also plan a Roth conversion, the two share the same room. The Roth headroom finder takes capital gains into account.

A worked example

Frank and Diane file jointly, are both on Medicare, and expect $180,000 of MAGI in 2026. They hold a stock fund with $60,000 of unrealized gain that they want to sell to diversify. Selling all of it would bring MAGI to $240,000, into joint tier one, raising their 2028 premiums by $2,296.80. Selling $38,000 of gain in December 2026 and the remaining $22,000 in January 2027 keeps 2026 at the edge of the standard tier and leaves plenty of room in 2027. The sale is the same; only the timing changed.

Watch out for fund distributions

Mutual funds must pass realized gains to shareholders, usually in November or December. A large distribution counts as a capital gain for you even if you reinvest it and never sold a share. It is the most common cause of a retiree missing an IRMAA limit by a few hundred dollars. Before you do any year-end conversion or sale:

• Check each fund company's estimated distribution, usually published in October or November.
• Add those estimates to your MAGI forecast.
• Leave a cushion of a few thousand dollars below the limit.
• Consider holding funds that distribute large gains inside IRAs, where distributions do not count until you withdraw.

Using losses

Capital losses offset capital gains dollar for dollar, and up to $3,000 of net loss a year can offset other income. Unused losses carry forward indefinitely. Selling a losing position in the same year as a large gain lowers MAGI as well as tax. Be aware of the wash-sale rule: buying the same or a substantially identical investment within 30 days before or after the sale disallows the loss.

Charitable giving can help too. Donating appreciated shares directly to a charity, instead of selling them, keeps the gain out of your income entirely. It does not create a deduction that lowers MAGI, but it avoids adding the gain in the first place.

Inherited and gifted assets

Assets you inherit usually receive a step-up in basis to their value at the date of death, which erases the gain that built up during the original owner's life. Selling an inherited stock soon after inheriting it often creates little or no gain and little IRMAA effect. Gifts during life work differently: the recipient takes over the giver's basis, so the full gain shows up when they sell.

Frequently asked questions

Sources

• IRS Topic 409: Capital gains and losses
• IRS Publication 550: Investment income and expenses
• CMS: 2026 Medicare Parts B premiums and deductibles

Related guides

• Selling a home and IRMAA
• MAGI for IRMAA
• How to lower IRMAA