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Selling a loved one's home: Medicaid, Medicare, and money questions

The house is often the biggest thing a family owns. A few questions before listing can protect your loved one's care options. Rules vary by state, and this guide is general information, not legal or financial advice.

Short answer
Never sell or give a loved one's home to family or anyone else for less than it is worth, because Medicaid can treat that as a gift and delay long-term care coverage under its five-year look-back. Selling does not affect Medicare, but it turns an often-protected home into countable cash for Medicaid, so talk with an elder law attorney and the state Medicaid office before you list, sell, or transfer.

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Do not sell below fair market value

Selling the home to a family member or anyone else for less than it is worth, or giving it away, can be treated by Medicaid as a transfer of assets. If your loved one applies for Medicaid long-term care within the look-back period, that can trigger a penalty period when Medicaid will not pay for that care.

How families protect against this:

Get a written professional appraisal, or at least a broker price opinion, before agreeing on a price.
Make it an arm's-length sale: a fair price, normal terms, and the money actually paid to your loved one.
Keep records: the appraisal, the listing, offers, the contract, the closing statement, and where the money went.
Ask an elder law attorney before any sale to family, any price below the appraisal, or any gift of the home.

Medicare and the house

Medicare generally does not pay for long-term custodial care, such as help with bathing, dressing, and daily living in a nursing home or at home. Selling the home does not affect Medicare eligibility itself, which is not based on assets. If your loved one gets help paying Medicare costs, such as a Medicare Savings Program or Extra Help, money from a sale may count, so ask before selling. A free SHIP counselor can explain what Medicare covers for your loved one.

Medicaid and the home

For Medicaid long-term care, the home is often treated as an exempt asset while your loved one or a spouse lives there, or while your loved one intends to return. A home equity limit applies, and the amount and details vary by state. Once the home is sold, the money from the sale is usually countable, which can affect eligibility until it is spent on allowed things. Ask the state Medicaid office how the home and any sale money would be counted.

The five-year look-back and penalty period

When someone applies for Medicaid long-term care, the state reviews gifts and transfers made during the look-back period, which under federal law is generally 60 months before the application. Giving the house away, adding a child to the deed, or selling it below market value to family can create a penalty period. Some states have their own rules, so rules vary by state.

Exceptions, in general terms

Federal rules allow some transfers of the home without a penalty, for example to a spouse, to a child who is under 21, blind, or disabled, to a sibling with an equity interest who lived there for a period, or to an adult child who lived in the home and gave care that kept the parent out of a nursing home for a period, often called the caregiver child exemption. Each exception has strict conditions and proof requirements. Only an elder law attorney licensed in that state can tell you whether one fits.

Estate recovery and liens

After a Medicaid enrollee dies, states must seek repayment from the estate for certain long-term care costs, and the home can be part of that estate. Recovery is delayed or barred in some cases, such as when a spouse or a child under 21 or with a disability survives, and states have hardship waivers. Some states can also place a lien on the home while a person is permanently in a nursing home. Ask the state Medicaid office how this works where your loved one lives.

Spending down and spousal protections

If the home is sold, the money may need to be spent on your loved one's care and needs before Medicaid will pay. Spending must be for fair value and well documented. When one spouse needs long-term care and the other stays at home, federal spousal protection rules let the at-home spouse keep a share of the couple's resources and income. The details vary by state.

Taxes, at a high level

The IRS allows many owners to exclude some gain when they sell a main home they lived in for a required period. When someone inherits a home, its tax basis is generally stepped up to the value at the date of death, which can change the tax picture of selling now versus later. A CPA or enrolled agent can explain what applies to your loved one.

Questions to ask before listing

Is your loved one likely to need Medicaid long-term care in the next five years?
Does a spouse, a child under 21 or with a disability, or a caregiving child live in the home?
Would selling now, later, or not at all change Medicaid eligibility, estate recovery, or taxes?
Who has legal authority to sell, such as a power of attorney or court approval?
Where will the sale money go, and how will it be documented?
Has anyone offered to buy the home at a family price?

Who to talk to first

Before you list, sell, or transfer the home, talk with an elder law attorney licensed in the state where your loved one lives, and call the state Medicaid office. For Medicare questions, a free SHIP counselor can help.

Next step, before listing

Get matched with a trusted local real estate agent (free)

Once the attorney and the Medicaid office have answered your questions, a local agent experienced with seniors and estates can help you sell at fair market value and keep clear records.

A good local agent can help with:

Experience working with older adults, families, and estates
Pricing the home to fair market value, which matters for Medicaid, taxes, and any family sale
Coordinating with the executor, the person with power of attorney, or the attorney
Deciding whether to sell as-is or make repairs first

Before you list, finish the checks: the Medicaid look-back and fair market value, any reverse mortgage, power of attorney or executor authority, the deed and title, and vacant home insurance.

Request a free agent match

Free to your family, in any state. We'll review your request and follow up. See the referral disclosure at the bottom of this page.

Common questions

Can we sell Mom's house to a family member for less?

Selling to family for less than fair market value can be treated by Medicaid as a gift, which can cause a penalty period if she applies for long-term care within the look-back period. Get a professional appraisal, keep the sale arm's length with records, and talk with an elder law attorney before agreeing to any family price.

Does selling the house affect Medicare?

Not Medicare eligibility itself, which is not based on assets. Sale money may count for programs that help pay Medicare costs, such as a Medicare Savings Program or Extra Help. Medicare also generally does not pay for long-term custodial care.

Is the house counted for Medicaid?

Often the home is exempt while the person or a spouse lives there or intends to return, but a home equity limit applies and rules vary by state. After a sale, the money is usually countable.

What is the Medicaid look-back?

A review of gifts and transfers, generally during the 60 months before applying for Medicaid long-term care. Transfers for less than fair value can lead to a penalty period.

Can Medicaid take the house after death?

States must seek estate recovery for certain long-term care costs, and the home may be part of the estate, with exceptions and hardship waivers. Ask the state Medicaid office and an elder law attorney.

Rules vary by state. Check with your state agency or a licensed professional where your loved one lives.

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Official resources and further reading

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