Lender Guidelines: 3.5 Mortgage Subsidy Recapture Tax
A borrower who receives Bond DPA or an MCC (with or without Non-Bond DPA) may be subject to a federally imposed mortgage subsidy recapture tax (“Recapture Tax”) if the mortgagor sells his or her residence within nine years of settlement. The tax, if any, will always be the lesser of: (a) 50% of the gain from the sale of the home, and (b) an amount based on a formula which takes into consideration: (1) the original principal amount of the first mortgage loan; (2) the number of complete years that pass before the home is sold; (3) the applicable median family income for the home buyer’s area at the time he/she bought the home, and (4) the home buyer’s adjusted gross income at the time the home is sold.
There are several conditions that can exempt a borrower from Recapture Tax. These include: (a) no net gain on the sale of the property, (b) insufficient increase in the income of the borrower between the time of purchase and the time of sale, (c) sale of the home after the ninth year, and (d) a sale due to death or divorce.
For access to the full TSAHC DPA & MCC Guidelines, please click here.