Federal Subsidy Recapture


DEFINITION of 'Federal Subsidy Recapture'

The Federal subsidy recapture is the repayment of all or part of a federal mortgage subsidy if the home is sold or otherwise disposed of within nine years of receiving a federally-subsidized loan. If a home is financed using a federally-subsidized program, all or part of the benefit received from the program may need to by repaid (recaptured) by increasing the federal income tax for the year of the sale.

BREAKING DOWN 'Federal Subsidy Recapture'

A federal mortgage subsidy occurs when a homebuyer receives:

  • A mortgage loan that had a lower interest rate than was usually charged because it was funded from a tax-exempt qualified mortgage bond (QMB) issue; or

  • A mortgage credit certificate (MCC) with the mortgage loan that can be used to reduce the homebuyer's federal income taxes; or

  • An assumed seller's obligation on a QMB-funded loan, provided the homebuyer is qualified to obtain a loan from the proceeds of a QMB; or

  • The seller's MCC that is transferred with the approval of the issuer, and the homebuyer meets the eligibility requirements for the MCC.
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