Timing for ACA Lifechange declaration with LTCG

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elpollo
Posts: 101
Joined: Sun Jun 23, 2019 12:10 am

Timing for ACA Lifechange declaration with LTCG

Post by elpollo »

Hello,

I seem to have about $40k of LTCG in taxable fund, and have about $25k in LTCG(long term capital losses harvested) I've been rolling over on the 1040,
Otherwise, I'm not clear what my other returns for the year will be for 2021. 2020 was a bit lower than 2019; something around $17k; and some RMDs, so I put $28k on my ACA declaration and am enjoying the low premium (rescue act) for 2021.

I am wanting to Zero out the $40k fund (tired of dealing with the FTC form 1116, despite now being below the cutoff, still had to file it for 2020).

Question I have is:
Should I:
1- wait and sell it later in the year, and declare a "life change" then to the higher income say MAGI of $40k, so it is in the ballpark,
2- or just sell it now and do the "life change" report;
3- or maybe ; not do the "life change report" at all, and sell it at the end of the year? or now?

I realize it will be reconciled nonetheless on the 2021 1040 ..
Discussions should be conducted without fondness for dispute or desire for victory. - Benjamin Franklin
michaeljc70
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Joined: Thu Oct 15, 2015 3:53 pm

Re: Timing for ACA Lifechange declaration with LTCG

Post by michaeljc70 »

I don't think it matters much in your case. I would not change my ACA application and just reconcile it (if applicable) on my tax return. In almost any year I am guessing what my income will be for ACA purposes.
Last edited by michaeljc70 on Wed Jul 28, 2021 8:50 am, edited 1 time in total.
mlipps
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Joined: Thu Jun 21, 2012 9:35 am

Re: Timing for ACA Lifechange declaration with LTCG

Post by mlipps »

A change in income is a qualifying life change to be eligible for a special enrollment period. Furthermore, you supposed to update your income with the Marketplace if it changes significantly during the year. While the subsidy can be reconciled on your tax return, things like the "extra help" that reduces deductibles for lower income folks cannot.

For the OP's purposes, if they are just getting an ACA plan with subsidies, but do not qualify for "extra help", I don't think any of the 3 options really make a difference. If there is a drastic overpayment of the subsidy and you hit the cap for repayment, you may come out ahead this way. It's not clear what additional scrutiny you may be subject to in future years if you misestimate your income this year though, especially if it is a one time higher income. You may have to submit additional documentation next year if you try to submit $28k as your estimated income in 2021.

However, at your income level you do qualify for the middle level of "extra help" with your deductible. I think you should run the numbers on how your plan will change before you do anything. Your subsidy will go down proportional to income so that may not be a big deal, but the cliffs for the increase in deductible & OOP are pretty nasty. You may also want to look at this to make a better estimate for next year; an income of less than $25,520 gets you a huge cut in both so if you are close I would try to stay below that.

If it were me, I would wait until December & figure out what the rest of your income is before doing anything.
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elpollo
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Re: Timing for ACA Lifechange declaration with LTCG

Post by elpollo »

mlipps wrote: Wed Jul 28, 2021 8:41 am A change in income is a qualifying life change to be eligible for a special enrollment period. Furthermore, you supposed to update your income with the Marketplace if it changes significantly during the year. While the subsidy can be reconciled on your tax return, things like the "extra help" that reduces deductibles for lower income folks cannot.

For the OP's purposes, if they are just getting an ACA plan with subsidies, but do not qualify for "extra help", I don't think any of the 3 options really make a difference. If there is a drastic overpayment of the subsidy and you hit the cap for repayment, you may come out ahead this way. It's not clear what additional scrutiny you may be subject to in future years if you misestimate your income this year though, especially if it is a one time higher income. You may have to submit additional documentation next year if you try to submit $28k as your estimated income in 2021.

However, at your income level you do qualify for the middle level of "extra help" with your deductible. I think you should run the numbers on how your plan will change before you do anything. Your subsidy will go down proportional to income so that may not be a big deal, but the cliffs for the increase in deductible & OOP are pretty nasty. You may also want to look at this to make a better estimate for next year; an income of less than $25,520 gets you a huge cut in both so if you are close I would try to stay below that.

If it were me, I would wait until December & figure out what the rest of your income is before doing anything.
appreciate the reply, My understand it the "cliffs" are now a slope for a few years because of the rescue or cares acts ? https://thefinancebuff.com/tax-calculat ... bsidy.html

one other factor is I'm an early retiree not yet 60, and thinking I might like to fill the 12% (0% CG) bracket, possibly up till Medicare age, maybe with Roth Conversion, after the CGLs are zero'd out, and I've gotten the Total Int'l ex-US out of the taxable side :) :happy
Last edited by elpollo on Wed Jul 28, 2021 1:06 pm, edited 1 time in total.
Discussions should be conducted without fondness for dispute or desire for victory. - Benjamin Franklin
mlipps
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Joined: Thu Jun 21, 2012 9:35 am

Re: Timing for ACA Lifechange declaration with LTCG

Post by mlipps »

The subsidy cliffs are a slope for now, but the "extra help" is not. Strongly recommend you go to ACA and price plans out at different income levels to see the impact on max OOP & deductible for your state & age. For my mom, under $25,520 in income gives her a deductible of $1300 and max OOP of $2,800; $25,521 gives her deductible of $5,700 and max OOP of $6,600. I believe the bend points in income for an individual are $19,140, $25,520, and $31,900 but check the numbers for yourself to be sure.

We are doing the same for my mom with Roth conversions until Medicare age, thus why I have all of this calculated for her situation in such painstaking detail.
SuzBanyan
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Re: Timing for ACA Lifechange declaration with LTCG

Post by SuzBanyan »

I have a similar question. I’m on the ACA for the first time but this is my second year as a sole proprietor. I used last year income to estimate for ACA. But 2020 was a weird year so now I expect to exceed that income by the end of August 2021. My best guess now is that I will have underpaid by about $500 per month for my Bronze Plan (no extra help with co-pays).

If I wait and sort it out with my tax filing, will that effect my safe harbor withholding for 2022? That is, is safe harbor based on 2021 tax amount or 2021 tax amount + $6000 for excess subsidy? If the latter, then adjusting income for ACA in 2021 probably makes more sense.
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