Federal Recapture Tax

What is federal recapture tax?

Many VHFA programs provide federal tax benefits for the borrower, including MOVE, MOVE MCC and MCC.  As a result, under certain circumstances, the federal government may recapture a portion of the benefit. 

Will recapture tax be owed?*

Recapture occurs if all three (3) of the following conditions occur:

  1. home is sold in less than nine (9) years from the purchase date, and
  2. the home sale results in a profit, and
  3. combined income for borrower and non-borrower spouse exceeds maximum income** for recapture at the time of sale recapture tax may be owed.   

The recapture tax owed is calculated by comparing three (3) different calculations and taking the lowest of the three:

  1. 6.25% of the original principal balance, or
  2. 50% of the profit on the sale, or
  3. IRS recapture tax computation detailed in the Recapture of Federal Mortgage Subsidy Form 8828 instructions. 

Any tax filer who purchased a home with a mortgage revenue bond program like MOVE, MOVE MCC and MCC must complete and file IRS Form #8828 upon sale or disposal of the home.

Reimbursement of recapture tax paid

If recapture tax is owed and paid upon the sale of a VHFA financed home, the tax paid may be eligible for reimbursement by VHFA.  To request reimbursement, complete and send the Recapture Tax Reimbursement Form to VHFA with all documents requested.   The request must be received no later than December 31 of the calendar year following the tax year in which the tax was owed and paid.

 

* Neither VHFA nor VHFA Participating Lenders are licensed to provide tax advice, detailed recapture tax questions should be directed to a licensed tax professional.

**Maximum income for recapture changes annually, a disclosure is provided at the time of closing that includes a maximum income grid, for detail on what the current income thresholds please contact a VHFA Participating Lender.