ACA Subsidy Cliff 2027: Rental Income, Roth, Repayment
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Quick Answer
Under the original ACA rules that apply again in 2026 and 2027, the premium tax credit is lost for the whole year once household income passes 400% of the federal poverty line: $62,600 for one person and $84,600 for two in 2026, and $63,840 and $86,560 in 2027. Household income is adjusted gross income plus tax-exempt interest and untaxed Social Security (26 U.S.C. 36B(d)(2)(B)), so net rent after depreciation, K-1 income, a Roth conversion and the gain on a sale all count, while REIT return of capital does not. Since section 71305 of Public Law 119-21, taxable years beginning after December 31, 2025 have no cap on repaying advance credits: the 2025 Form 8962 instructions capped repayment at $1,625 for a single filer at 300% to under 400% of poverty, and that cap is gone. Treasury’s proposed regulations of October 15, 2026 estimate 3.7 million returns will include a repayment in 2028. For 2027 the expected contribution at 300% to 400% of poverty is 10.22% of income (Rev. Proc. 2026-26). Worked example (our arithmetic): a single filer at $63,840 keeps a credit of $6,675.55 on an assumed $13,200 benchmark premium; at $63,841 it is zero. Open enrollment for 2027 coverage starts November 1, 2026. As of October 20, 2026 we found no enacted extension of the 2021 to 2025 enhanced credits.
Key Takeaways
- The line is 400% of the poverty guideline published before open enrollment starts (26 U.S.C. 36B(d)(3)(B)). For 2026 that is the 2025 guideline ($15,650 for one person, $21,150 for two), so $62,600 and $84,600; for 2027 it is the 2026 guideline ($15,960 and $21,640), so $63,840 and $86,560 (our arithmetic). The statute covers household income that “does not exceed 400 percent”, so the first dollar above the line loses the credit.
- Household income is built from adjusted gross income. The Instructions for Form 8962 start Worksheet 1-1 at Form 1040 line 11a and add tax-exempt interest and non-taxable Social Security. For a real estate holder that means net Schedule E income, K-1 ordinary and rental income, dividends, capital gains, the taxable part of an installment sale, boot in a 1031 exchange and the full taxable amount of a Roth conversion all count (our reading of the cited texts).
- REIT and BDC distributions classed as return of capital (Form 1099-DIV box 3) are not income while basis remains: Pub. 550 says a nondividend distribution “reduces the basis of your stock” and “is not taxed until your basis in the stock is fully recovered”. The section 199A deduction on REIT dividends is taken below adjusted gross income, so it does not lower household income (our reading).
- Repayment has no cap for taxable years beginning after December 31, 2025. Section 71305 of Public Law 119-21 struck 36B(f)(2)(B), and the proposed regulations say the full excess “increases the taxpayer’s tax liability”. The 2025 Form 8962 instructions had capped it at $375 to $3,250 below 400% of poverty; above 400% there was no cap even then.
- The 2027 applicable percentage table (Rev. Proc. 2026-26, IRB 2026-31) is higher than 2026: 10.22% against 9.96% at 300% to 400% of poverty, and 10.22% at the top of the 250% to 300% band against 9.96%. At $63,840 that is $165.98 a year more for the same income (our arithmetic).
- Dates that matter: 2027 open enrollment begins by November 1, 2026 and ends by December 31, 2026 at the latest (45 CFR 155.410(e)(5)); comments on the proposed regulations close November 30, 2026, with a telephonic hearing on December 8, 2026. We found no 2026 edition of the Form 8962 instructions on irs.gov on October 20, 2026.
CSV · 105 rows
ACA subsidy cliff for 2026 and 2027: cutoffs, percentages, repayment rules and what counts
105 rows: the 2025 and 2026 poverty guidelines for one to four people and the 400% cutoffs, both applicable percentage tables, the statute and Public Law 119-21 text, the October 15, 2026 proposed regulations, the 2025 Table 5 repayment caps, 19 income items for a real estate holder with their IRS authority, and four worked examples (our arithmetic).
The dollar cliff for 2026 and 2027
The credit is available to a taxpayer “whose household income for the taxable year equals or exceeds 100 percent but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved” (26 U.S.C. 36B(c)(1)(A)). The poverty line is not the one for the year of coverage. Section 36B(d)(3)(B) says it is “the most recently published poverty line as of the 1st day of the regular enrollment period for coverage during such calendar year.” Coverage for 2027 is bought from November 1, 2026, by which time HHS had published its 2026 guidelines (Federal Register, January 15, 2026). Coverage for 2026 used the 2025 guidelines (Federal Register, January 17, 2025). The 2025 Instructions for Form 8962 show the same one-year lag: for 2025 they list the 2024 lines, $15,060 for one person and $20,440 for two.
| Household size (48 states and DC) | 2025 guideline, sets the 2026 line | 2026 line (400%) | 2026 guideline, sets the 2027 line | 2027 line (400%) |
|---|---|---|---|---|
| 1 person | $15,650 | $62,600 | $15,960 | $63,840 |
| 2 people | $21,150 | $84,600 | $21,640 | $86,560 |
| 3 people | $26,650 | $106,600 | $27,320 | $109,280 |
| 4 people | $32,150 | $128,600 | $33,000 | $132,000 |
Source: HHS poverty guidelines, Federal Register notices of January 17, 2025 (document 2025-01377) and January 15, 2026 (document 2026-00755), and the HHS ASPE guidelines page. The 400% columns are our arithmetic (guideline x 4). Alaska and Hawaii have higher guidelines.
Three points the table does not show. First, the cutoff is on household income of the tax family, not only the person who is insured: a spouse’s income and any dependent’s required-to-file income are added (Instructions for Form 8962, “Household income”). Second, a household in a given year has one line; a sale in December 2026 counts against the $62,600 line, one in January 2027 against $63,840 (our reading). Third, the credit is one number for the year: Rev. Proc. 2026-26 prints its top row as “At least 300% but not more than 400%”, with no row above it.
What you are expected to pay below the line
Below 400% the credit is the benchmark premium minus a share of your income. The IRS sets that share each year. Rev. Proc. 2026-26 (Internal Revenue Bulletin 2026-31, page 131) gives the 2027 table, and Rev. Proc. 2025-25 (IRB 2025-32, page 311) gave 2026. The scout view that 2027 sits in Rev. Proc. 2026-26 is correct.
| Household income as a share of the poverty line | 2026 initial / final percentage of income | 2027 initial / final percentage of income |
|---|---|---|
| Less than 133% | 2.10% / 2.10% | 2.15% / 2.15% |
| At least 133% but less than 150% | 3.14% / 4.19% | 3.23% / 4.30% |
| At least 150% but less than 200% | 4.19% / 6.60% | 4.30% / 6.78% |
| At least 200% but less than 250% | 6.60% / 8.44% | 6.78% / 8.66% |
| At least 250% but less than 300% | 8.44% / 9.96% | 8.66% / 10.22% |
| At least 300% but not more than 400% | 9.96% / 9.96% | 10.22% / 10.22% |
Source: Rev. Proc. 2025-25 section 3.01 (2026) and Rev. Proc. 2026-26 section 3.01 (2027). The percentage rises in a straight line from the initial to the final figure across each band, as 26 U.S.C. 36B(b)(3)(A)(i) describes.
The 2027 table moved because HHS now measures premium growth with a figure that includes individual market premiums, a change Rev. Proc. 2026-26 attributes to the 2025 Marketplace Integrity and Affordability rule (90 Fed. Reg. 27074). The temporary lower percentages of 26 U.S.C. 36B(b)(3)(A)(iii) applied only to taxable years “after December 31, 2020, and before January 1, 2026.”
Worked example A: what the last dollar costs (our arithmetic). Assume a single filer in 2027 buys the benchmark plan at $1,100 a month, $13,200 a year (an assumption of ours, not a quoted premium). At $63,840 of household income, exactly 400.0% of $15,960, the expected contribution is 10.22% x $63,840 = $6,524.45, so the credit is $13,200 - $6,524.45 = $6,675.55 a year. At $63,841 it is $0. The cost of that one dollar equals the whole credit. A couple with the same benchmark per person would face the same step at $86,560.
What counts toward ACA household income: a line-by-line table
Household income is “the modified adjusted gross income of the taxpayer” plus that of other required filers in the tax family (26 U.S.C. 36B(d)(2)(A)). Modified adjusted gross income is adjusted gross income “increased by” three things: income excluded under section 911, tax-exempt interest, and the part of Social Security benefits not included in gross income (36B(d)(2)(B)). The Instructions for Form 8962 turn that into Worksheet 1-1, which starts at the AGI on Form 1040 line 11a. The table applies it to the income a real estate holder actually has. The verdicts on each row are our reading of the cited texts.
| Item on your return | Counts? | Where it lands | Authority |
|---|---|---|---|
| Net rental income, Schedule E Part I, after depreciation and expenses | Yes, the net amount | Schedule E, then adjusted gross income | 26 U.S.C. 36B(d)(2)(B); Instructions for Form 8962, Worksheet 1-1 line 1; Instructions for Schedule E |
| Rental loss that the passive loss rules allow | Lowers it, only if allowed | Form 8582; the special $25,000 allowance is phased out between $100,000 and $150,000 of its own MAGI | Instructions for Form 8582 (2025) |
| Partnership K-1 box 1, ordinary business income | Yes | Schedule E Part II | Partner’s Instructions for Schedule K-1 (Form 1065), box 1 |
| Partnership K-1 box 2, net rental real estate income | Yes | Schedule E Part II; a passive activity amount for all partners | Partner’s Instructions for Schedule K-1 (Form 1065), box 2 |
| REIT or BDC ordinary dividends, 1099-DIV box 1a | Yes | Form 1040 dividends; box 5 section 199A dividends are included in box 1a | Instructions for Form 1099-DIV, box 5 |
| Qualified business income deduction on REIT dividends | No effect | Form 1040 line 13a, after AGI | Instructions for Form 1040 (2025), line 13a; Form 8962 Worksheet 1-1 |
| REIT or BDC return of capital, 1099-DIV box 3 | No, while basis remains | Reduces basis; any excess over basis is capital gain | IRS Publication 550 (2025), nondividend distributions |
| Capital gain distributions and gains on sales, Schedule D | Yes, in full | Form 1040 line 7a | Instructions for Form 1040 (2025), line 7a |
| Unrecaptured section 1250 gain | Yes, inside the capital gain | A tax-rate category of net capital gain | IRS Publication 550 (2025), capital gains tax rates |
| Installment sale, gain reported as payments arrive | Only the portion reported that year | Form 6252 to Schedule D or Form 4797 | IRS Publication 537 (2025) |
| Installment sale, depreciation recapture income | Yes, all of it in the sale year | Form 4797 Part II, ordinary income | IRS Publication 537 (2025), depreciation recapture income |
| 1031 exchange, deferred gain | No | Form 8824 | Instructions for Form 8824 (2025) |
| 1031 exchange, cash or other boot | Yes, up to the gain | Form 8824 | Instructions for Form 8824 (2025) |
| Roth conversion of a traditional IRA | Yes, the taxable amount | Form 1040 lines 4a and 4b | IRS Publication 590-B (2025) |
| Qualified distribution from a Roth IRA | No | Not included in gross income | IRS Publication 590-B (2025) |
| Tax-exempt interest, Form 1040 line 2a | Yes, added back | Modified AGI | 26 U.S.C. 36B(d)(2)(B)(ii); Worksheet 1-1 line 2 |
| Social Security benefits that are not taxed | Yes, added back | Modified AGI | 26 U.S.C. 36B(d)(2)(B)(iii); Worksheet 1-1 line 4 |
| Adjustments on Schedule 1, such as an IRA deduction, HSA deduction or self-employed health insurance | Lowers it | Schedule 1 line 26 to Form 1040 line 10 | Instructions for Form 1040 (2025), line 10 |
| Standard or itemized deduction | No effect | Taken after AGI | Instructions for Form 8962, Worksheet 1-1 |
Source: 26 U.S.C. 36B(d)(2); Instructions for Form 8962 (2025); Instructions for Forms 1040, Schedule E, Form 8582, Form 1099-DIV, Form 8995, Form 8824 and the Partner’s Instructions for Schedule K-1 (Form 1065); IRS Publications 537, 550 and 590-B (all 2025 editions except the 1099-DIV instructions, revised January 2024).
A few of these rows need more than a cell.
- Return of capital. Pub. 550 says a nondividend distribution is one “not paid out of the earnings and profits of a corporation or a mutual fund” and that “When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain.” For illustration, a non-traded REIT that pays $9,000 a year against a $60,000 basis keeps that $9,000 out of household income for now, and the same distribution counts after basis hits zero. Our guide to REIT distributions and return of capital explains the 1099-DIV boxes.
- Depreciation helps, with limits. Net rent is after depreciation, which Pub. 527 describes as “the mechanism for recovering your cost in an income-producing property”. A paper loss lowers household income only if the passive loss rules let you deduct it. Instructions for Form 8582 say passive losses not allowed in the current year “are carried forward”, so they do not lower this year’s figure. See our passive loss allowance guide and tax on rental income.
- Installment sales. Pub. 537 says depreciation recapture income is reported “in the year of sale, whether or not an installment payment was received that year”, and “Only the gain greater than the recapture income is reported on the installment method.” Spreading the rest across years can keep each year under a line, which is a different question from whether tax is lower overall. See installment sales of real estate.
- K-1 and 1099-DIV timing. Fund-level gains reach you on a K-1 or a 1099-DIV, often after year end, and count in the year they are reported. Our guide to K-1 versus 1099-DIV for real estate investments lists the boxes.
- Roth conversion. Pub. 590-B says “Conversion distributions are includible in your gross income”. A conversion made on December 31, 2026 is a 2026 item against the $62,600 line (single). One made on January 4, 2027 is a 2027 item against $63,840 (our reading). See our Roth conversion guide.
- Social Security. At 62 or later some early retirees draw benefits. The untaxed part is added back, and the taxable part sits in AGI. Our Social Security and rental income guide shows how provisional income differs from this definition.
Worked example D: Roth room under the 2027 line (our arithmetic). A single filer assumes $14,000 of net Schedule E income, $6,000 of K-1 ordinary income, $4,000 of REIT ordinary dividends and $1,500 of tax-exempt interest. The REIT also sends $9,000 of return of capital. Household income before any conversion is $14,000 + $6,000 + $4,000 + $1,500 = $25,500; the $9,000 is not included. Room to $63,840 is $38,340. A conversion of $38,340 reaches exactly 400%; $38,341 loses the credit. A tax-bracket plan and a subsidy plan can give different answers, because the subsidy line is a cliff, not a rate.
Repayment with no cap
Advance credit payments are based on the income you estimate when you enroll. When you file, Form 8962 compares them with the credit you are entitled to. Section 36B(f)(2) now reads: “If the advance payments to a taxpayer under section 1412 of the Patient Protection and Affordable Care Act for a taxable year exceed the credit allowed by this section (determined without regard to paragraph (1)), the tax imposed by this chapter for the taxable year shall be increased by the amount of such excess.” Section 71305(a) of Public Law 119-21 amended 36B(f)(2) “by striking subparagraph (B)”, the repayment limitation, and section 71305(c) applies the change “to taxable years beginning after December 31, 2025.”
Until then the Form 8962 instructions capped what you repaid below 400% of poverty. Table 5 in the 2025 edition read as follows. Above 400% there was no cap even in 2025: “If your entry on Form 8962, line 5, is 400 or more, there is no repayment limitation.”
| Household income as a share of the poverty line (tax year 2025) | Cap, single | Cap, any other filing status |
|---|---|---|
| Less than 200% | $375 | $750 |
| 200% to under 300% | $975 | $1,950 |
| 300% to under 400% | $1,625 | $3,250 |
| 400% or more | No cap | No cap |
Source: Instructions for Form 8962 (2025), Table 5, line 28. These are 2025 amounts shown for comparison; the 2025 edition was the latest on irs.gov on October 20, 2026, and we found no 2026 edition.
The proposed regulations published October 15, 2026 confirm the reading: “for taxable years beginning after December 31, 2025, a taxpayer’s tax liability for the taxable year of the coverage is increased by the full amount of the excess APTC.” Treasury and the IRS “estimate that, in 2028, approximately 3.7 million returns will include a repayment of excess APTC.” The statute applies without waiting for a final rule.
Worked example B: a sale across the line (our arithmetic). A couple assumes a $28,800 benchmark premium for 2026 ($2,400 a month). They enroll in 2026 expecting $52,875 of income, exactly 250.0% of $21,150, which puts the expected share at 8.44%. Advance credits for the year are $28,800 - ($52,875 x 0.0844) = $24,337.35. A rental sale pushes actual household income to $92,875, above $84,600, so the credit allowed is $0 and the repayment is $24,337.35. The 2025 Form 8962 instructions show no cap at 400% or more either, so this outcome does not depend on section 71305.
Worked example C: what the cap removal changes (our arithmetic). A single filer assumes a $13,200 benchmark premium and enrolls in 2026 expecting $31,300, exactly 200.0% of $15,650, so 6.60% applies and advance credits are $13,200 - ($31,300 x 0.0660) = $11,134.20. Actual income is $62,000, 396.2% of $15,650 and just under the line. The credit allowed is $13,200 - ($62,000 x 0.0996) = $7,024.80, so the excess is $4,109.40, all of it repayable. The 2025 Table 5 figure for this band was $1,625 for a single filer, a $2,484.40 difference. The figures ignore Form 8962’s rounding of the percentage of poverty.
What is proposed, what is law, what is not yet published
- Law now. The 400% line and the full-repayment rule are statute for 2026 and 2027. Rev. Proc. 2026-26, published after the enhanced credits lapsed, still prints a 400% top row. As of October 20, 2026 we found no enacted extension of the 2021 to 2025 temporary percentages; if Congress acts, this page changes.
- Proposed. REG-101576-26 (Federal Register document 2026-21056, 91 FR 65494) would conform Treas. Reg. 1.36B-4 to section 71305, and it also covers alien eligibility and Form 1095-A reporting. Comments are due November 30, 2026, and a telephonic hearing is scheduled for December 8, 2026.
- Later. Section 71303 of Public Law 119-21 adds a pre-enrollment verification requirement for taxable years beginning after December 31, 2027 (26 U.S.C. 36B(c)(3)(A), as amended). It does not apply to 2026 or 2027 coverage.
- Not found. A 2026 edition of the Instructions for Form 8962, with 2026 figures, was not on irs.gov on October 20, 2026.
What a reader can do with this
- Compute your own line first. Take the AGI you expect for the year, add tax-exempt interest and untaxed Social Security, and subtract it from $62,600 or $84,600 for 2026, or $63,840 or $86,560 for 2027. The result is your room.
- Date each item. Closings, installment payments, conversions and K-1 delivery all fall in a tax year; the 2026 line and the 2027 line differ by $1,240 for one person (our arithmetic).
- Sort distributions by 1099-DIV box. Box 3 return of capital and box 1a dividends have opposite effects on the line. Ask the sponsor for the final split before you rely on an estimate.
- Report income changes to the Marketplace. The Form 8962 instructions say reporting changes promptly “will allow the Marketplace to adjust your APTC” and “can help you avoid owing tax when you file your tax return.”
- Compare dollars, not rates. A conversion that costs some income tax may also cost a credit of several thousand dollars; both belong in the same model. At 65 the question changes to Medicare premiums, covered in our IRMAA guide.
- Keep documents. The household income that counts is the figure on your return, so keep the 1099-DIV, K-1, 1099-R and Form 8949 support for the year.
This is analysis of public documents, not investment, legal or tax advice. The dollar above 400% of the poverty line costs the whole year’s credit, and the full amount of advance credits you received for that year is then repaid.
FAQ
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Sources, read and saved on October 20, 2026: 26 U.S.C. 36B (Cornell LII, as currently codified); Public Law 119-21, sections 71303 and 71305 (govinfo.gov); Rev. Proc. 2026-26 (IRB 2026-31) and Rev. Proc. 2025-25 (IRB 2025-32); proposed regulations REG-101576-26, 91 FR 65494 (October 15, 2026); HHS poverty guidelines, Federal Register notices of January 15, 2026 and January 17, 2025, and the HHS ASPE guidelines page; 45 CFR 155.410; Instructions for Form 8962 (2025), Form 1040 (2025), Schedule E (2025), Form 8582 (2025), Form 8824 (2025), Form 8995 (2025) and Form 1099-DIV (revised January 2024); Partner’s Instructions for Schedule K-1 (Form 1065) (2025); IRS Publications 527, 537, 550 and 590-B (2025). Premium assumptions, headroom and repayment examples are our arithmetic.
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