Capital Gains Tax Exclusion
Under Section 121, single filers can exclude up to $250,000 and married couples up to $500,000 in capital gains from selling their primary residence. You must have owned and lived in the home for at least 2 of the last 5 years.
Surviving Spouses: You can use the full $500,000 exclusion if you sell within two years of your spouse's passing. After two years, it drops to $250,000. This creates an important planning window.
How Selling Affects Medicare Premiums
Capital gains exceeding the exclusion are added to your income and can trigger IRMAA surcharges on Medicare Part B and Part D premiums. For 2026, the standard Part B premium is $202.90/month with no surcharge for singles under $109,000. The good news: IRMAA is temporary — it only affects premiums based on income from two years prior.
Medicaid Implications
Your primary home is generally exempt from Medicaid's asset limit while you live there. But when you sell, proceeds become countable assets. NC's individual Medicaid asset limit is just $2,000. Selling at fair market value is NOT a violation — only below-market transfers trigger penalties. Consult an elder law attorney before selling if Medicaid is a factor.
NC Tax Programs for Seniors
Homestead Exemption
Homeowners 65+ with income under $38,800 can exclude up to 50% of appraised value from property taxes. One-time application via Form AV-9 at your county tax office by June 1.
Circuit Breaker Program
Limits annual property taxes to 4–5% of income for homeowners 65+ who've owned their home 5+ years. Annual reapplication required. Note: deferred taxes remain a lien — the last 3 years become due when you sell.
No Tax on Social Security
North Carolina does not tax Social Security benefits at the state level — a significant advantage for retirees. However, retirement account withdrawals and pensions are taxed at NC's flat 4.25% rate.
Smart Use of Proceeds
Pay off remaining debts first. Build a 6–12 month emergency fund. Consider income-producing investments. Pre-fund long-term care. Pre-pay funeral costs (removes from estate and doesn't count against Medicaid). Be cautious — these funds may need to last 20–30+ years.