Will recapture eliminate a borrower’s gain from the sale of the home?
Fortunately, no. The recapture tax can never exceed 50% of the gain.
What happens if the loan is assumed?
If the sale or transfer occurs within the first nine years of ownership, the original borrower pays the recapture tax and a new nine-year period begins for the purpose of applying a new recapture tax to the assuming purchaser.
What IRS form is used to figure the recapture tax amount?
The borrower is required to file IRS Form 8828 with his/her federal income tax return for the tax year in which the home is sold or transferred.
Is recapture tax due if the borrower dies within the nine-year period?
No. A death transfer is not a sale or transfer for the purposes of recapture.
What if the home is destroyed as a result of fire, flood or other natural disaster?
If the home is destroyed and borrower rebuilds on the same site within two years after the year in which the insurance proceeds are received, no recapture tax is due at that time.