If the taxpayer financed their home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), they may have to recapture all or part of the benefit they received from that program when they sell or otherwise dispose of the home. The benefit is recaptured by increasing the federal income tax for the year of the sale. The taxpayer may have to pay this recapture tax even if they can exclude the gain from income.
The recapture applies to loans that:
- Came from the proceeds of qualified mortgage bonds, or
- Were based on mortgage credit certificates.
The recapture also applies to assumptions of these loans.
Recapture of the federal mortgage subsidy applies only if the taxpayer meets both of the following conditions.
- Within the first 9 years after the date of receiving the federal subsidy or loan, the home is sold or otherwise disposed of at a gain;
- Their income for the year of disposition is more than that year’s adjusted qualifying income for their family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program).
Additional Information:
Desktop: Other Taxes and Recaptures - Tax Years 2020 and prior