Controlling Your Income: A Guide to ACA and Real Estate Income

In the pursuit of early retirement, controlling your income is crucial to stay within ACA eligibility and maximize tax benefits. However, it raises the question: what about real estate income? Can it be managed without disrupting your financial goals?

Understanding ACA Eligibility

The Affordable Care Act (ACA) provides health insurance subsidies to individuals and families with low to moderate income. To qualify, your income must be below a certain level. In 2023, the income limit for a single person is approximately $45,000. If your income exceeds this limit, you will not be eligible for subsidies and may face higher healthcare premiums.

The Dilemma of Real Estate Income

Real estate rental income is a common source of income for many individuals and retirees. However, it’s important to consider how it impacts your ACA eligibility. Unlike dividends and capital gains, real estate income is considered taxable income. This means it can push your income above the ACA limit, resulting in reduced or eliminated subsidies.

Balancing Real Estate and ACA

1. Passive Income Alternatives:

Consider alternative ways to generate passive income that do not directly increase your taxable income. For example, you could invest in tax-advantaged accounts such as a Roth IRA or 401(k), which allow your earnings to grow tax-free.

2. Real Estate Depreciation:

Rental properties can be depreciated over time, which reduces your taxable income. However, it’s important to note that depreciation is a non-cash expense, meaning it does not affect your cash flow.

3. Management Expenses:

Property management fees and other related expenses can offset the rental income you receive. However, these expenses must be reasonable and customary to be deductible.

4. Controlled Withdrawals:

If necessary, plan a gradual withdrawal from your real estate investments over time. This can help keep your income below the ACA limit and maintain your eligibility for subsidies.

Conclusion

Real estate income can be a valuable asset in your retirement portfolio, but it’s crucial to manage it carefully to avoid negatively impacting your ACA eligibility. By exploring alternative income sources, utilizing depreciation, and implementing controlled withdrawals, you can preserve your healthcare subsidies and enjoy the benefits of real estate income in retirement. If you have any questions or need personalized guidance, don’t hesitate to contact a licensed agent for professional advice.