Mortgage Credit Certificate - Recapture Tax Information
Notice of Recapture Tax
Buyers using the Home At Last™ Mortgage Credit Certificate (MCC) program may be subject to a recapture tax if they sell their home within 9 years of purchase. The Nevada Rural Housing Authority doesn’t want this to be a deterrent to receiving this incredible tax credit benefit, so we created the Home At Last™ Recapture Tax Reimbursement Program to eliminate this risk. It’s just another way the Nevada Rural Housing Authority is helping rural Nevadans – today and for years to come.
What is Recapture Tax?
The Internal Revenue Service (IRS) requires recapture tax on mortgages funded through the sale of tax-free mortgage revenue bonds to help ensure compliance of helping low-to-moderate income homebuyers. Provisions limit the recapture tax from exceeding 6.25% of the original loan amount or 50% of the net gain from the sale of the home.
For any potential recapture tax obligations to apply, the following 3 provisions must occur at the time of sale:
- The home is sold within the first 9 years of the purchase date, AND
- A net profit is received from the sale of the home, AND
- The Borrower’s income at the time of sale exceeds the maximum household income limit
Borrowers more likely to pay recapture tax may have the following circumstances:
- Are employed in a field with high growth income potential
- Have income close to the maximum income limit at the time of purchase
- Are purchasing a home in a high housing inflation environment
- Are single at the time of purchase but may be married when the home is sold
Borrowers are not subject to recapture in the following circumstances:
- The home is transferred to a spouse, or former spouse, in connection with a divorce where no gain is included
- The home is destroyed by a casualty and it is repaired or replaced on its original site within 2 years after the end of the tax year when the casualty occurred
- The home is sold, or otherwise disposed of, as a result of the Borrower’s death
- The home is refinanced (refinancing does not cancel the recapture tax provision, which may still apply if the home is sold within 9 years)
If recapture tax is owed, it is not collected at the time of the sale. The Borrower must complete IRS Form 8828 and file it with their Federal Tax Return for the year the home is sold (regardless of whether the Borrower owes recapture). The IRS Form 8828 will assist the Borrower in determining if any recapture tax is owed. We always recommend consulting with a tax advisor to answer your federal tax questions.
Home At Last™ Reimbursement Program
At the Nevada Rural Housing Authority, our desire is to remove any concern a homebuyer may have about needing to sell their home within the first 9 years, so we created the Recapture Tax Reimbursement Program to make the program risk-free!
Borrowers who obtained a valid Home At Last™ Mortgage Credit Certificate on or after January 1, 2014, may request reimbursement for the actual amount of recapture tax they paid to the IRS.
To request reimbursement, submit a Request for Recapture Tax Reimbursement form no later than December 31st of the year the federal recapture tax is paid, accompanied by the following:
- Copy of the signed Federal Tax Return filed with the IRS, including the completed IRS Form 8828 – Recapture of Federal Mortgage Subsidy, for the year in which the home was sold or otherwise disposed of
- Evidence that the federal taxes were actually paid in full to the IRS (e.g. copy of cancelled check or bank statement showing payment to IRS)
- Copy of the signed Final Closing Statement/Settlement Statement issued by the title company in connection with the sale of the home
- Completed and signed IRS Form 4506 – Request for Copy of Tax Return
Reimbursement for the entire amount of recapture tax actually paid (as reported on IRS Form 8828) will only be issued to the original Borrower, and requests will only be accepted and processed if all of the required items are received by December 31 of the year the federal recapture tax is paid.