Does one time Capital gains make me responsible to pay back subsidies?

[joejr]

In 2016 I signed up for Obamacare  in PA  (Family of 5 me, wife, 3 kids) with an Estimated Income of $40k being self employed. I owned Rental Properties that I ended up selling 2 of them, which brought my income up to $87k. My accountant initially filed my return without the 1095, so after an audit they determined that I have to pay back all subsidies + penalties and interest for a total close to $18k, this all happened in Sept of 2017, but we were under an extension, so I think we had till October to refile, but my accountant deserted me because he knew he screwed up the return. I figured if I at least refiled I could get rid of penalties and interest. I am working with a new accountant who questions whether the one time capital gain of selling the properties does invoke me actually having to pay back the subsidies, He told me to call the Marketplace or IRS and try to clarify this or he will charge me by the hour for him to do it. Haven't been able to get a straight answer from anybody at the Marketplace and haven't been able to get through to the IRS yet, but figured I would ask here?

[fanfare]

Capiital Gains are income. They happen to get a favorable tax rate.
Anybody who calls himself an accountant doing tax returns should know that.

[joejr]

Would they cancel the subsidies because I estimated wrong?  The new accountant says that he still thinks the income comes in under the 300% poverty number the ACA uses.They are not favorable in PA, I got hit pretty hard for the gain and had to pay back any depreciation.

[BobinCT]

Well, considering that the key number is 400% of the poverty level and it's a pretty easy number to look up, it doesn't really seem that your accountant is really on top of the issue.  But...if you underestimated your income a lot then even if you income is under 400% of the poverty level you will have to repay a lot of the subsidies for 2017 (doesn't affect 2016 at all), even though probably not all.

[joejr]

I actually was told the 300% number by somebody I talked to when I called the Marketplace. This was actually for the 2016 tax year, we are still awaiting a ruling on us being able to refile because we were under extension until October of 2017, the IRS audit came in September 2017. We got a letter from the IRS saying there was such a backlog in ACA cases they wouldn't be able to consider anything until next month. My old accountant was not on top of the issue, we were in the exchange for the last 5 years and he didn't file the 1095a form, which we supplied him because it was in with everything he returned, which triggered the audit

[BobinCT]

Well..the pre-2016 years should come out more or less OK if you income estimates for those years were close, but you need to get the returns for those years filed, including the 1095-As.  So then the issue is mostly 2016.  Extension or not, you need to file that return, including the 1095-A.

[lilygoat1958]

I don't believe the crux of the question is being answered here . . . is a (any) one-time capital gain(s) considered "household income" for ACA subsidized payment purposes?  I had a client (who was already receiving subsidized payments because they were unemployed) sell an antique car for a large capital gain.  More than 1/2 of the proceeds went to payoff a loan they had on the car, but the overall gain took them over the 400% poverty level.  This client (for the moment) is showing they have to pay back the entire $14k of subsidized insurance payments because they decided to sell this antique car because they couldn't afford the monthly payments.

[VolvoGirl]

I believe all your income counts.  @TaxGuyBill

[TaxGuyBill]

@lilygoat1958   VolvoGirl is correct, if it is income on the tax return, it is income for purposes of the Premium Tax Credit (the credit is based on your Modified AGI).  As-is, it looks like your "client" will need to repay the entire Advance credit.

However, if your client is married, filing as Married Filing Separately may reduce the repayment.  In the event they had any self employment income, contributing to a SEP to get under 400% will also reduce it.


As a side note, you mentioned your "client".  I hope you are not using TurboTax as a paid tax preparer, as it is not licensed for that.  If you want/need more information about that, please post back.

[LisaBr]

The exclusion is regarding your personal home but not to rental properties.  These are the same rules for Federal Taxes whether the or not you need to repay the subsidy.

The following link is where I found this information:

https://www.healthcare.gov/glossary/capital-gains/

The following link gives more information from the IRS regarding exceptions and who qualifies for them.

https://www.irs.gov/affordable-care-act/individuals-and-families/aca-individual-shared-responsibilit...

[Edited 02.14.2018  9:59 PM EST]