Some CHFA mortgage loan programs are funded by tax exempt mortgage revenue bonds. If you use these programs or receive a credit against your federal income taxes through a Mortgage Credit Certificate, you could be subject to the Federal Recapture Tax if and when you sell your home.

The Recapture Tax is part of the federal tax code. It is collected by the Internal Revenue Service and not paid to CHFA. This federal income tax is due for the year in which the home is sold.

CHFA programs subject to tax

The Recapture Tax may apply to the following CHFA programs:  

• CHFA FirstStep and CHFA FirstStep Plus
• HomeAccess
• Mortgage Credit Certificate 

When the tax applies

The potential for paying a recapture tax applies only when you sell your home. You pay it when you file your tax returns for the year in which you sell your home and pay off your mortgage loan with CHFA.

The Recapture Tax is not activated when you refinance the property; however, refinancing does not cancel the Recapture Tax provision.

All of the following conditions must be in effect to activate the Recapture Tax:

• The home is sold, or disposed of in some other way, within nine years of the original mortgage loan closing date.
• You have a net gain on the sale of the property.
• Your annual adjusted gross income exceeds the federal threshold limit as prescribed by the federal tax code and as stated in CHFA forms 407 and MCC-14. The maximum federal threshold limit increases approximately 5% per year for the first nine years after the mortgage loan closing date, as shown in CHFA forms 407 and MCC-14.

• employed in a high growth income potential position.
• close to the maximum income limit at the time of mortgage loan closing.
• not reporting all your income.
• in a high inflation environment.

Special rules may apply in certain circumstances including divorce, destruction of the property, or if you give away the property.

Exceptions

You will not owe a Recapture Tax if:

• you transfer the home to your spouse or to your former spouse due to a divorce, where no gain is included in your income.
• the home is destroyed by a casualty and you repair or replace it on its original site within two years after the end of the tax year when the destruction happened.
• the home is disposed of as a result of your death

Payment information

The tax is limited to the lesser of one of the following:

• 50% of the net gain on the sale of the property
• 6.25% of the original mortgage loan amount, known as the Federally Subsidized Amount (FSA)

Typically, if you are subject to the Recapture Tax, only a percentage of the FSA is owed. For each year the home is owned, the corresponding percentage of the FSA changes. For example, if you sold your home in the third year, you could potentially owe tax on 60% of the FSA.
Whether you owe a Recapture Tax or not, you must complete IRS form 8828 and file it with your federal tax return for the year the home is sold. This form instructs how to calculate the correct amount due, if any, to the IRS.

Refer to your copy of CHFA form 407  or MCC-14 for the exact dollar amounts of the figures mentioned in this section.

CHFA now offers a Recapture Tax Reimbursement plan. Learn more here.