Q. In the case of a divorce, who is
responsible for recapture? Disclosure Statement:
Florida Housing Finance Corporation is
A. Whoever receives the home in the not responsible for calculating recapture
divorce settlement pays the recapture, if tax. The information provided is strictly
for informational purposes and should
Q. Will recapture eliminate the not replace the advice of a tax consul-
borrower’s gain from the sale of tant or the IRS. Please contact either of
the home? these sources with any questions.
A. No. The recapture tax can never exceed
50 percent of the gain.
About Florida Housing
Common Scenario Florida Housing administers a number of rental
John and Kimberly purchased a home in housing and homeownership programs that help
Palmetto for $74,000 using Florida Housing’s low-income Floridians obtain safe, decent affordable
First Time Homebuyer Program. At the time housing that might otherwise be unavailable to them.
they purchased the home, their annual income Our rental housing programs include the Multifamily
was $30,000. Mortgage Revenue Bond, Low Income Housing
Tax Credit, State Apartment Incentive Loan, Elderly
Seven years later, they have one child and they Housing Community Loan, Florida Affordable Housing
decide to sell their home to move into a larger Guarantee and Home Investment Partnerships
home. They sell their home for $100,000, a programs.
net gain of 27%. In addition, their income has
Homeownership programs include the First
increased to $50,000 annually. They aren’t
Time Homebuyer Program, the Homeownership
subject to any recapture taxes, because they
Loan Program and down payment assistance
didn’t sustain a substantial increase in income.
programs such as the Homeownership Assistance
Program, HOME Down Payment Assistance and
Uncommon Scenario Homeownership Assistance for Moderate Income. In
Mark and Teresa purchased a home in Miami addition, Florida Housing offers the Mortgage Credit
for $55,000 using Florida Housing’s First Certificate program. We also administer combined
Time Homebuyer Program. At the time they homeownership and rental housing programs,
purchased the home, their annual income was including the Predevelopment Loan Program and the
$25,000. State Housing Initiatives Partnership program.
Six years later, they decide to sell their home
(one of the worst years according to the
recapture formula). They sell the home for Homeownership
$85,000 and their income has increased
to $50,000 annually. They realized a gain
of $25,000 on the sale of their home and
their income has increased by 100%. As a
G •u •i •d •e
result, these borrowers would have to pay
approximately $2,500 to repay the amount 227 N. Bronough Street • Suite 5000
of interest they saved due to the increase in Tallahassee, FL 32301
income and gain realized from the sale of the Telephone 850.488.4197
The Internal Revenue Service (IRS) Recapture to pay recapture tax, it would be due Q. How do you calculate the
provision became a federal law on January when federal income tax for the year in “Adjusted Qualifying Income?”
1, 1991. Commonly known as “recapture,” which the home is sold is filed.
it applies to borrowers who purchase their A. First, determine the borrower’s
homes using financing derived from tax-exempt There are certain expenses of a home household size at the time the home
mortgage revenue bonds (MRBs) such as sale that the IRS allows to be deducted is sold or transferred. Next, select the
those issued by the Florida Housing Finance from the gross profit such as real estate maximum income limit that would have
Corporation (Florida Housing). Initiated by the commissions, state tax and home applied to that household size at the
IRS, recapture allows the federal government improvement expenses. The reduced time the home was purchased. This
to recover lost tax revenues from the sale or figure is the net profit. number, compounded by five percent
transfer of a MRB funded home. per year from the date of purchase until
Q. How will a homeowner know the date the home is sold or transferred
Recapture tax requires some mortgagors to if they are subject to pay any is the “Adjusted Qualifying Income.” If
repay the government a portion of their gain recapture tax? the borrower’s year-end income does
upon sale of the home if they financed their
not exceed this amount, then there is no
home with a mortgage revenue bond (MRB) A. All three of the following events recapture tax.
loan. If any recapture tax is due, the mortgagor would have to occur in order for the
pays it to the IRS after selling the home. After homeowner to be subject to recapture. Q. How much recapture will a
the MRB loan closing, a “Welcome Letter/ First, there must be a profit or net homeowner have to pay?
Recapture Notice” is mailed to the homeowner gain made on the sale of the home. If
showing the maximum recapture tax which there is no net gain, then there is no A. The maximum recapture tax a
could be due, if any. This information will be recapture tax. Second, recapture only homeowner may have to pay is 6.25
needed if you have to calculate the recapture affects homes sold within nine years percent of the loan’s original principal
tax. You should keep all mortgage information of the date of purchase; homes sold balance. For example, on a mortgage
about recapture as part of your tax records. after year nine are not affected. Third, loan of $85,000, the maximum
a borrower must have a substantial recapture would not exceed $5,312.50
Recapture has generated concerns among increase in income (since the time of
lenders, real estate professionals and ($85,000 x 6.25% = $5,312.50). This
the loan closing) that puts their current percentage varies depending upon the
prospective borrowers. For most people, income above the “Adjusted Qualifying
the financial benefits of homeownership - number of years since the purchase of
Income Limit.” the home. (Please see the following
deductions for mortgage interest and taxes as
well as the MRB program’s lower interest rates scale).
Q. What do you mean by a
and down payment assistance - far outweigh substantial increase in income?
the risks of recapture.
A. Federal maximum income limits apply
If you have questions about the details that to the purchase of your home. Certain
aren’t outlined in this brochure, you should regulations automatically increase these
consult with a tax professional. maximums at the rate of five percent
per year for recapture tax purposes.
Commonly Asked If at the time you purchase your
Questions and Answers home your income is near the federal
maximum, annual income increases
Q. What is the Federal Recapture would have to exceed five percent
Tax? per year before you would be subject
to any recapture tax. If your income
A. It is a federal tax that some
was considerably below the federal
homeowners with Florida Housing MRB
maximum at the time of purchase,
loans may be required to pay from the
there is more leeway for an increase
net profit they receive from the sale
in your income before you would be
of their homes. If the homeowner has
subject to the recapture tax.