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Federal Recapture Tax

What is the Federal Recapture Tax?

The Federal Recapture Tax is a tool used by the Internal Revenue Service (IRS) to ensure the benefits of Mortgage Revenue Bonds and Mortgage Credit Certificates are reaching those who need it most. The Recapture Tax applies to VHFA programs that involve Mortgage Revenue Bonds or Mortgage Credit Certificates. The Federal Recapture Tax is paid directly to the IRS. 

If I payoff or refinance my VHFA mortgage, or my mortgage that has a Mortgage Credit Certificate am I subject to the Federal Recapture Tax?

If you obtained your financing through VHFA programs or obtained a Mortgage Credit Certificate (MCC) from VHFA, you may be subject to the Federal Recapture Tax should you sell, refinance, or otherwise transfer the original financing associated with your MCC. The Federal Recapture Tax was disclosed to you via the Notice of Mortgagor of Maximum Recapture Tax on Sale of Home at the time that you obtained your loan.

Does the Federal Recapture Tax Apply to me?

Regardless of whether you think the Recapture Tax applies to you or not, it is still your responsibility to complete and file IRS Form #8828 when you are completing your taxes after the sale, transfer, or refinance is complete. If all of the following three conditions apply to you, then the Federal Recapture Tax may apply to you:

  1. You are selling or refinancing your home within nine (9) years of purchase.
  2. The sale of your home will result in a net profit from your original purchase price.
  3. All borrowers and non-borrowing spouses present at the time of the original mortgage exceed the Maximum Incomes for Recapture at the time of sale. (Contact VHFA for information about Maximum Incomes for Recapture)

How much might I owe?

VHFA does not determine if a recapture tax is owed, calculate amounts, or provide tax advice. For additional information, contact the IRS or your tax preparer. As described in the Notice of Mortgagor of Maximum Recapture Tax on Sale of Home given to during the process of obtaining your loan or MCC, the calculation takes into consideration how long you have held the property, the amount you exceed the Maximum Incomes for Recapture, and your loan amount.

Am I eligible for reimbursement for Recapture Tax paid?

If you obtained a mortgage from VHFA between February 1, 2006 and December 13, 2013, the amounts paid for Federal Recapture Tax may be eligible for reimbursement from VHFA. Borrowers with mortgage loans closed prior to and after these dates, are not eligible for reimbursement. Borrowers who received a Mortgage Credit Certificate with or without VHFA financing are also NOT eligible for reimbursement from VHFA for any Recapture Tax due and payable to the IRS.

How do I request reimbursement from VHFA?

To request reimbursement, complete our Recapture Tax Reimbursement Form and submit to VHFA within the stated time requirement.