Some home buyers, builders, REALTORS® and mortgage lenders who want to use the Alabama Housing Finance Authority’s low-interest rate loans are concerned about the federal “recapture tax.” This simple explanation may alleviate those worries and help more people who could benefit from our First Step Mortgage Revenue Bond (First Step) and Mortgage Credit Certificate (MCC) programs.
A federal law commonly known as “recapture tax” applies to borrowers who buy their homes using First Step and MCCs like those issued by the Alabama Housing Finance Authority.
Recapture tax requires some mortgagors to repay the government a portion of their gain upon the sale of the home if they financed their home with a First Step or MCC loan. This provision is administered by the Internal Revenue Service (IRS). If any recapture tax is due, the mortgagor pays it to the IRS after selling the home. At closing, the lender provides a “Recapture Settlement Disclosure” form showing the maximum recapture tax which could be due, if any.