Can You Lose Medicaid Coverage After Selling a House?

By 

Andrew Whytock

Updated 

January 11th, 2021

SHARE

Selling your house could disqualify you from receiving Medicaid if the profits from the sale bring your assets over your state’s Medicaid asset threshold.

However, if your total countable assets stay below your state’s threshold, which is just $2,000 in most states, you can still qualify for Medicaid. Houses that are primary residences are considered to be exempt assets, so buying a new house might be an option.

Medicaid is a federally aided program that is administered by each state and provides support for elderly adults, people with disabilities, and low-income individuals.

Many people who are already on Medicaid sell their house in order to pay their bills. This is allowed as long as you’re using the money to pay debts like a mortgage, car payments, or medical bills.

How will selling my home affect my Medicaid coverage?

Selling your home could instantly disqualify you from Medicaid coverage if the profits from the sale bring you assets over your state’s threshold. For the purposes of the asset threshold, “assets” means any liquid assets, like cash or stocks.

The threshold is only $2,000 in most states, so selling a house will usually bring you well over the limit.

Medicaid asset thresholds by state

State

Asset threshold (individual)

Asset threshold (couple)

$2,000

$4,000

$2,000

$3,000

$2,000

$4,000

$2,000

$3,000

$2,000

$3,000

$2,000

$3,000

$1,600

$3,200

$2,000

$3,000

$4,000

$6,000

$2,000

$3,000

$2,000

$3,000

$2,000

$4,000

$2,000

$4,000

$2,000

$3,000

$2,000

$3,000

$2,000

$3,000

$2,000

$4,000

$2,000

$4,000

$2,000

$3,000

$10,000

$15,000

$2,000

$3,000

$2,000

$3,000

$2,000

$3,000

$3,000

$6,000

$4,000

$8,000

$5,000

$10,000

$2,000

$4,000

$4,000

$6,000

$2,000

$4,000

$2,500

$5,000

$2,000

$3,000

$2,000

$4,000

$15,750

$23,100

$2,000

$3,000

$3,000

$6,000

$2,000

$3,000

$2,000

$4,000

$2,000

$4,000

$2,000

$4,000

$4,000

$8,000

$2,000

$4,000

$2,000

$3,000

$2,000

$4,000

$2,000

$3,000

$2,000

$4,000

$2,000

$3,000

$2,000

$4,000

$2,000

$3,000

$2,000

$3,000

$2,000

$4,000

$2,000

$3,000

How to spend-down assets

If you exceed the asset limit, one option is to “spend-down” your assets to bring yourself back below the limit and requalify.

If you spend-down your assets using eligible expenses, there’s no penalty period that temporarily disqualifies you from receiving Medicaid coverage. All you need to do is bring your countable assets below the threshold and reapply.

Eligible spend-down options include paying off debt like credit cards, your remaining mortgage balance, medical bills, car payments, etc. 

You can even spend-down your assets to purchase a new house, as long as it still meets the exemption requirements.

Save money when buying a home.

Clever can help make buying a home more affordable.

Medicaid rules for selling a home

There are several important guidelines that you should be aware of if you’re currently receiving Medicaid but want to sell your home.

Determine if the home is a countable asset

Medicaid is set up to distinguish between “countable” and “non-countable” assets. 

A home that is your primary residence is considered a non-countable asset because its value doesn’t count towards your asset limit.[1]

However, if you move out of the house and it is no longer your primary residence, it becomes a countable asset.

Based on this, you could disqualify yourself from Medicaid before even selling your home.

Medicaid home equity limit

Applicants who have home equity in excess of $595,000, or $893,000 in some states,are not eligble for Medicaid.[2]

Equity is the difference between what you owe on your house and its fair market value.

For example, if your house is currently worth $250,000, and you have $50,000 remaining on your mortgage, you have equity of $200,000.

Gifting the home will disqualify you

Homeowners who have a home that’s become a countable asset due to their change in residency often think that they can get around this problem by gifting the home.

The problem is that this is against the rules unless you transfer ownership to a qualified party. Gifting your home to an ineligible party will actually disqualify you from Medicaid eligibility for a period of time.

Exceptions are made if you transfer the ownership of your home to:

  • A spouse

  • A child under the age of 21

  • A child who is permanently disabled

  • A sibling who has equity in the home and has lived there for at least one year

  • A child who was residing in the home for at least two years prior to the Medicaid application[1]

The lookback period on these transfers is five years, but the actual penalty is based on the time that the transfer is made and how long (from that date) the amount transferred would have paid the cost of nursing home care.

Don’t sell below market value

Selling your house to someone you know for less than fair market value is also considered gifting. So, if you sell your house to one of your adult kids for $1 hoping to dispose of the asset without making any money, your plan will be foiled.

When Medicaid identifies this transfer of ownership, they’ll perceive it as a gift and you will be penalized for the amount that should have been paid according to the home’s fair market value.

For example, if the fair market value of your home was $100,000, but you sold it to your son for $50,000, Medicaid could potentially view the difference ($50,000) as a gift and impose a penalty period that temporarily prevents you from being eligible.

Make sure the state has no liens on the home

Some Medicaid recipients choose to sell their homes in an effort to keep up with their bills.

What many people don’t know is that the state has the ability to impose a Tax Equity and Fiscal Responsibility Act (TEFRA) lien on your home if you’re a Medicaid recipient.[1]

With a TEFRA lien, the government can actually claim a portion of the equity in a sale or transfer in order to offset the costs of long term care.

TEFRA liens can’t be placed on a home that you’re still living in, but they can be placed on a home that you’ve had to move out of in order to move into a long term care facility.

A lien on your home could complicate the sale and significantly decrease the profit that you hoped to net by selling your home, so make sure you still own your home free and clear before you sell it.

Specific rules may vary by state, so ask a local Medicaid expert for more information before listing your home.

Can you buy a house while you’re on Medicaid?

You can technically buy a house while you’re on Medicaid, but it might not make a lot of sense. 

If you’re purchasing a house that won’t be your primary residence, you will disqualify yourself from Medicaid since your countable assets will likely exceed your state’s threshold.

The reality is that if you’ve qualified for Medicaid, you probably don’t have the means to go out and buy a new house, even if you can qualify for a mortgage.

However, you might be able to afford a new house if you’re taking the proceeds from a house you’ve just sold and spending them on your new home. 

In that case, buying a new house is allowed if the house you purchase will be your primary residence, or if you have the “intent to return.”

Individuals who are living in a long-term care facility aren’t able to live in a house as their primary residence and are unlikely to have a realistic “intent to return” due to health limitations.

What is intent to return?

Intent to return means that you have a reasonable intention of returning to your primary residence, even if you aren’t currently living there.[1]

A letter or affidavit from the homeowner expressing their intent to return is generally enough to establish intent for Medicaid applications, but in some states, further conditions — like an assessment from a physician —  must be met.

Final thoughts

If you’re currently receiving Medicaid coverage, selling your home might still be an option. 

However, individual situations and state rules might prevent you from being able to sell or from truly profiting on the sale. 

Before you do anything, it’s best to consult an estate planning attorney or Medicaid expert who is familiar with the Medicaid laws in your state.

Additional reading

ARTICLE SOURCES
[1]

U.S. Department of Health and Human Services. "Medicaid Treatment of The Home." Updated April 1, 2005.

[2]

Elder Law Answers. "Medicaid’s Treatment of The Home." Updated May 29, 2020.