The Recapture Tax is a federal tax that some homeowners with Kentucky Housing Corporation (KHC) home loans may be required to pay. You may have to pay this tax if you meet the following guidelines: If you sale your home within the first nine years of owning it, If you have a "substantial increase" in income or If you receive a net profit on the sale of your home. If a homeowner has to pay a recapture tax, the amount will be due when they file their federal income tax for the year in which they sell their home. The maximum tax is limited to 6.25 percent of the original loan amount.
A profit must be shown before any tax is due. However, you may have a profit and no tax due if your income does not exceed the allowable income in the year of the sale. If a recapture tax must be paid, all of your profit will not be taken. Under what is known as the gain-on-sale adjustment, the recapture amount can never exceed 50 percent of the profit from the sale of the item.
Federal maximum income limits apply to the purchase of your home. If a homeowner is required to pay recapture tax, the homeowner must report it on his or her federal income tax return. Please consult a tax accountant or financial advisor prior to preparing your return. The exact recapture tax liability, if any, is based on income, family size and the amount of the net profit obtained from the sale of the home. KHC provides new home owners with a notice of maximum recapture tax and method to calculate recapture tax if your home is sold. A duplicate copy of the maximum recapture tax form should be found in your closing documents from when you purchased your home. If you are unable to locate your copy of this form, please contact Customer Service toll-free at 800-633-8896, extensions 203, 268, 282 or 302 or via email at customerservice@kyhousing.org to obtain a duplicate copy.
It is very unlikely that KHC borrowers will be affected by the recapture tax. A homeowner would pay no recapture tax if they own the home for more than nine years; if they do not have a “substantial increase” in their income; and if they do not receive a net profit on the sale of the home. There is no way to predict the exact recapture tax liability, if any, since it is based on the homeowner’s individual situation when they sell their home. Unfortunately, KHC employees can not calculate this recapture tax or indicate how much liability would be, if any. This information can only be calculated at tax time the year after the home has been sold by your tax advisor.
Effective for loans closed on or after October 1, 2006, KHC will reimburse borrowers subject to the Recapture Tax. Reimbursement guidelines can be found on KHC Form "Federal Recapture Tax Reimbursement Policy Disclosure/Application." This Form is provided to you when you first closed on your home along with another Recapture Tax Letter entitled "Notice to Mortgagor of Maximum Recapture Tax and Method to Calculate Recapture Tax on Sale of Home" informing you of this tax and the formula to calculate the tax. If you have misplaced the "Federal Recapture Tax Reimbursement Policy Disclosure", please contact our Homeownership Department toll-free at 800-633-8896, extension 443 to obtain a duplicate. If you are needing to replace the "Notice to Mortgagor of Maximum Recapture Tax and Method to Calculate Recapture Tax on Sale of Home" letter, please contact Customer Service in the Loan Servicing Department toll-free at 800-633-8896, extensions 203, 268, 282 or 302 or via email at customerservice@kyhousing.org for assistance.
If you have further questions regarding Recapture Tax on your loan and you are unable to locate the answer on the Info Center, please submit your question online by selecting the "Ask a Question" option which is located at the top of each screen.
