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Recapture Tax/Reimbursement Program

Mortgage loans are financed with proceeds of tax exempt MRBs and, therefore, may be subject to a recapture tax paid by the mortgagor for federal income tax purposes. The potential recapture tax will only apply if the mortgagor:

1. Sells the home within nine years after the loan closing date; and
2. Realizes a gain on the sale of the home as defined by the IRS; and
3. Has a modified adjusted gross income greater than the adjusted qualifying income on the recapture notice for the year the home is sold (based on the family size at the time of sale of the residence).

For answers to specific questions about calculating potential tax liability, seek assistance from a professional tax advisor or the IRS. For example, there are certain exceptions due to dispositions by reason of death or casualties.

WCDA’s Recapture Tax Reimbursement Program

WCDA will reimburse the recapture tax paid by any WCDA mortgagor. The homeowner must apply for reimbursement to WCDA by July 15 of the calendar year immediately following the calendar year in which the home was sold. Reimbursement will be made only if the original MRB funded loan was outstanding at the time of sale. WCDA will not reimburse the homeowner if the 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 homeowner upon sale or disposition of the home. The homeowner should consult a personal tax advisor or the IRS.

The homeowner must provide the following documents to WCDA in order to obtain recapture tax reimbursement:
1. WCDA Request for Recapture Tax Reimbursement form (available on the WCDA website)
2. Copy of the tax return reflecting the IRS Form 8828 (Recapture of Federal Mortgage Subsidy)
3. Proof that federal taxes were paid;
4. Copy of completed and signed final closing disclosure issued in connection with the disposition of the home
5. Signed IRS Form 4506T

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