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First time buyer Loan Recapture
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| YES, if you sell a home during the first nine years of ownership when the
home is financed with state bond money you may have to pay some of your
gain to the government. In the
sample you'll see Joe is going to owe $2700 at time of sale. Yet, if Joe financed $100,000
at 7.2% interest his monthly payment and interest would be $679. At 8.5% interest the
monthly payment would be $769.
| $769.00 |
$90.00 |
Actual P&I savings |
$6759 |
| $679.00 |
X 75 mos. |
Recapture |
$2700 |
| $90.00 |
$6759 |
Difference |
$4059 |
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Joe saved $90 a month for 75 months or
$6759. Even if Joe has to pay IRS $2700 he is still $4059 ahead.
MORAL TO THE STORY. If you expect your
income to increase substantially during the first nine years of ownership and if you don't
want the federal government to share in your profits, perhaps you should select a
different type of loan.
SAMPLE. Joe Blow sells his property for a
$20,000 gain in 7th year of ownership and Joe's income has gone up from no more than
$55,100 in the year of purchase to $91,000 in the year of sale. In this instance Joe will
owe an additional $2700 to the federal government due with his income taxes for the year
of sale. |
This sample illustrates if you expect your income to increase
substantially during the first nine years of ownership and you expect you will sell the
property during the first nine years of ownership you may want to consider a different
type of financing. When this
recapture issue first surfaced about 1990, I was taken back some. Then I reasoned
thinking...the Federal Government is already our partner, in our income, our investments
etc. So what's new. If it makes sense, do it.
This form will be completed with actual
figures and mailed to the mortgagor within ninety days after the loan has been purchased
by the master servicer for all loans closing on or after 1/1/91.
See below for this complicated formula to
determine how much you would owe IRS with specific profit, holding time and income. |
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| 1. Name of Mortgagor |
Joe Blow |
| 2. Home Mortgage Closing Date |
April 1, 1997 |
| 3. Address of Home: |
12345 36th NE, Seattle, WA 98125 |
| 4. Principal amount of home mortgage on date
of closing. |
$100,000 (MRB Mortgage Amount) |
| 5. Federally-Subsidized amount: |
$6250.00 (MRB Mortgage Amount from above times
.0625) |
| 6. Adjusted qualifying income table: |
Number of members of Mortgagor's household at
time of sale: |
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| You will be subject to payment of
recapture tax if you meet all three of the following requirements: |
| 1. You sell your home on or
before nine years from closing |
| 2. You sell your home for a gain.
(Gain is determined from IRS Form 2119) |
| 3. Your households Modified
Adjusted Gross Income for the year of sale exceeds the amounts in the table above. |
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| Maximum Annual Family Income Limit at Bond
issuance: |
1 or 2 persons |
3 or more persons |
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$55,100 |
$63,365 |
| Adjustment if home is sold before
4/1/2006 (108 months from date of mortgage closing: |
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| 1-12 months after mortgage closing |
$57,855 |
$66,533 |
| 13-24 months after mortgage closing |
$60,747 |
$69,859 |
| 25-36 months after mortgage closing |
$63,785 |
$73,352 |
| 37-48 months after mortgage closing |
$66,974 |
$77,020 |
| 49-60 months after mortgage closing |
$70,323 |
$80,871 |
| 61-72 months after mortgage closing |
$73,839 |
$84,915 |
| 73-84 months after mortgage
closing |
$77,531 |
$89,160 |
| 85-96 months after mortgage closing |
$81,407 |
$93,618 |
| 97-108 months after mortgage closing |
$85,478 |
$98,299 |
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| How much will I owe? |
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| The lesser of: |
The recapture amount or |
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The Maximum Recapture |
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How do I compute the recapture
amount?
| 1. Determine your Federally-Subsidized Amount
(item 5 of the Sample Notice Above) |
$6,250 |
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| 2. Determine the Holding Percentage from this
table |
Month of Sale |
Percentage |
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1-12 |
20% |
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13-24 |
40% |
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25-36 |
60% |
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37-48 |
80% |
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49-60 |
100% |
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61-72 |
80% |
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73-84 |
60% |
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85-96 |
40% |
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97-108 |
20% |
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| 3. Determine your Income
Percentage for the sale year as follows: |
Use your adjusted gross
income for the sale year by taking your adjusted gross income from IRS Form 1040 for that
year and adding to that amount your tax exempt interest from IRS Form 1040 and subtracting
the amount of gain that is included in adjusted gross income as a result of the sale of
the residence: |
| The example uses income for the year of sale
as |
$91,000 |
| Plus Tax exempt interest |
$10,150 |
| Subtotal |
101,150 |
| Less Gain from sale of residence |
20,000 |
| Modified Adjusted Gross Income |
81,150 |
| Get the Adjusted Qualifying Income for the
sale year from the first table) |
$77,531 |
| Subtract Adjusted Qualifying Income from
Modified Adjusted Gross Income |
$3,618. |
| Divide the result by 5000 to
arrive at your income percentage for the sale year |
.723 or 72% |
| Arrive at recapture amount by multiplying your
federally subsidized amount (item1) |
$6,250 |
| by your Holding Period Percentage (item 2) |
60% |
| then multiplying that amount by your Income
Percentage (item 3) |
72% |
| The result is the Recapture Amount |
$2,700 |
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