Borrowers who buy their homes using the HOC Mortgage Purchase Program may be subject to a federal Recapture Tax. This recapture tax has nothing to do with any recapture of appreciation on a county moderately priced dwelling unit (MPDU).

 

Borrowers who sell their home within nine years of the original purchase, may have to repay to the federal government a portion of their gain on the sale of their home, depending on (1) whether there is a gain on the sale, and (2) the household income at the time of sale. Recapture Tax, if owed, is paid directly to the IRS when filing taxes for the year in which the home is sold. A borrower may owe no tax upon sale. The maximum tax anyone might owe is 6.25% of their loan amount; however there is a sliding scale formula depending on how long the person has lived in the property.

 

If you are subject to the tax, you will receive during the lending process a document which provides a means of estimating if a tax may be due. It is impossible to predict if a borrower will owe any recapture tax because the borrower’s household income when the home is sold is unknowable in advance. After nine years from settlement, no recapture tax is due.