Publication 523 |
2001 Tax Year |
Chapter 4 Recapture of Federal Subsidy
If you financed your home under a federally subsidized program
(loans from tax-exempt qualified mortgage bonds or loans with mortgage
credit certificates), you may have to recapture all or part of the
benefit you received from that program when you sell or otherwise
dispose of your home. You recapture the benefit by increasing your
federal income tax for the year of the sale. You may have to pay this
recapture tax even if you can exclude your gain from income under the
rules in chapter 2; that exclusion does not affect the recapture tax.
Loans subject to recapture rules.
The recapture applies to loans that:
- Came from the proceeds of qualified mortgage bonds,
or
- Were based on mortgage credit certificates.
The recapture also applies to assumptions of these loans.
Federal subsidy benefit.
If you received a mortgage loan from the proceeds of a tax-exempt
bond, you received the benefit of a lower interest rate than was
customarily charged on other mortgage loans. If you received a
mortgage credit certificate with your mortgage loan, you were able to
reduce your federal income taxes by a mortgage interest tax credit.
Both of these benefits are federal mortgage subsidies.
Sale or other disposition.
The sale or other disposition of your home includes an exchange,
involuntary conversion, or any other disposition.
For example, if you give away your home (other than to
your spouse or ex-spouse incident to divorce), you are considered to
have "sold" it. You figure your recapture tax as if you had sold
your home for its fair market value on the date you gave it away.
When the recapture applies.
The recapture of the federal mortgage subsidy applies only if you
meet both of the following conditions.
- You sell or otherwise dispose of your home:
- At a gain, and
- During the first 9 years after the date you closed your
mortgage loan.
- Your income for the year of disposition is more than that
year's adjusted qualifying income for your family size for that year
(related to the income requirements a person must meet to qualify for
the federally subsidized program).
When recapture does not apply.
The recapture does not apply if any of the following
situations apply to you:
- Your mortgage loan was a qualified home improvement loan of
not more than $15,000,
- The home is disposed of as a result of your death,
- You dispose of the home more than 9 years after the date you
closed your mortgage loan,
- You transfer the home to your spouse, or to your former
spouse incident to a divorce, where no gain is included in your
income,
- You dispose of the home at a loss,
- Your home is destroyed by a casualty, and you repair it or
replace it on its original site within 2 years after the end of the
tax year when the destruction happened, or
- You refinance your mortgage loan (unless you later meet the
conditions listed previously under When the recapture
applies).
Notice of amounts.
At or near the time of settlement of your mortgage loan, you should
receive a notice that provides the federally subsidized amount and
other information you will need to figure your recapture tax.
How to figure and report the recapture.
The recapture tax is figured on Form 8828.
If you sell your home and your mortgage
loan is subject to the recapture rules, you must file Form 8828 even
if you do not owe a recapture tax. Attach Form 8828 to your Form 1040.
For more information, see Form 8828 and its instructions.
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