access your account
Community partners

Recapture Tax/Reimbursement Program

IRS Recapture Tax/ Reimbursement Program
A Federal Recapture Tax (additional federal income tax) may be owed when a home that was financed with a WCDA mortgage is sold. The tax liability is based on income, family size and net gain realized on the sale of the home. Each of the following events must occur to trigger the tax:

  1. The home is sold within the first nine years of the closing date; AND

  2. The homeowner realizes a gain on the sale of the home as defined by the IRS; AND

  3. The homeowner’s family income exceeds the maximum income limit for WCDA’s program at the time of purchase, compounded at 5% annually to the sale date.

Some borrowers are more likely to pay a Recapture Tax than others, such as:

Borrowers who are employed in a high-growth income potential position;

Borrowers who are close to the maximum income limit at the time of the mortgage loan closing;

Borrowers who are in a high housing inflation environment; or

Single borrowers at closing that are married when the home is sold.

Special rules may apply in certain circumstances. You will not owe a Recapture Tax if:

You transfer the home to your spouse or to your former spouse in connection with a divorce where no gain is included in your income;

Your home is destroyed by a casualty and it is repaired or replaced on its original site within two years after the end of the tax year when the destruction happened; or

If the home is sold or otherwise disposed of as a result of the borrower’s death.

If there is a Recapture Tax, the year in which the property is sold will be used in calculating the amount of the tax. The Recapture Tax cannot exceed 6.25% of the original loan amount or 50% of the net gain. The Recapture Tax is not collected at the time of the sale but instead when filing a federal tax return for the year in which the sale occurred. The Recapture Tax is not activated if a borrower refinances the property; however, refinancing does not cancel the Recapture Tax provision. The borrower will sign a recapture tax disclosure form at the time of closing on their loan to purchase the home. This disclosure form includes the information needed to assist in determining if and when any recapture tax may be due.

Regardless of whether the borrower owes a Recapture Tax upon the sale of his or her home, they must complete IRS Form 8828 and file it with their Federal Tax Return for the year the home is sold. IRS Form 8828 will assist borrowers in calculating the correct amount due, if any, to the IRS. An applicant should refer to their recapture tax disclosure notice when completing IRS Form 8828. For answers to specific questions about calculating potential tax liability, seek assistance from a professional tax advisor or the IRS. Toll free numbers for the IRS and IRS forms can be found at

WCDA’s Recapture Tax Reimbursement Program
For all loans closed on or after January 1, 2012 and financed through the WCDA Single Family Bond Program, WCDA has taken the confusion and worry out of the recapture tax provision. WCDA will reimburse the Recapture Tax owed and paid by any WCDA homebuyer based on the sale of their home financed at WCDA.

A homebuyer seeking reimbursement will need to apply to WCDA by July 15 of the calendar year immediately following the calendar year in which the home was sold. WCDA will reimburse a homebuyer for payment of any recapture tax only if the WCDA-financed mortgage loan was outstanding at the time of sale (i.e. WCDA will not reimburse the homebuyer if the mortgage loan has been subsequently refinanced).

The reimbursement from WCDA will be limited to the actual amount of the recapture tax. (WCDA will not reimburse for any fees, interest, expenses or penalties incurred.) WCDA will not calculate the amount of the recapture tax owed by the homebuyer upon sale or disposition of the home. If assistance is needed, the homebuyer will need to consult a personal tax advisor or the IRS.

The borrower must provide WCDA a signed and completed WCDA Request for Recapture Tax Reimbursement form, a copy of the tax return reflecting the IRS Form 8828 (Recapture of Federal Mortgage Subsidy),a copy of their cleared check payable to the U.S. Treasury for any shortage they paid due to the Recapture Tax and a signed IRS form 4506, completed by every borrower.

WCDA's Recapture Tax Reimbursement Program does not apply to MCC holders. WCDA will not reimburse Recapture Taxes for holders of a Mortgage Credit Certificate.

WCDA Request for Recapture Tax Reimbursement Form

WCDA news

Closed August 21, 2017 for Solar Eclipse

WCDA will be closed all day Monday, August 21st, 2017 for the Solar Eclipse event.…read more »

more news »