Form 8828, Recapture of Federal Mortgage Subsidy, is used to calculate and report additional federal income tax that may apply when you sell or otherwise dispose of a home financed with a federal mortgage subsidy.
If you sell the home during the first nine years after receiving a federally subsidized mortgage, you may have to repay, or “recapture,” part or all of the subsidy. The recapture tax is reported for the tax year in which the sale or other disposition occurs.
What is a federal mortgage subsidy?
For purposes of Form 8828, Recapture of Federal Mortgage Subsidy, you generally received a federal mortgage subsidy if you had either:
- A mortgage loan, including certain qualified rehabilitation loans, with a below-market interest rate because it was funded through a tax-exempt qualified mortgage bond (QMB).
- A mortgage credit certificate (MCC) that allowed you to claim a federal tax credit based on mortgage interest.
You might also have received a federal mortgage subsidy if you assumed a seller’s QMB-funded mortgage or received a properly transferred and reissued MCC when you bought the home.
Your lender or bond issuer should have provided a written notice explaining the subsidy. That notice should include information needed to calculate any recapture tax, so it’s an important document to keep with your tax records.
Who must file Form 8828?
You generally must file Form 8828, Recapture of Federal Mortgage Subsidy, if all of the following apply:
- You sold or otherwise disposed of the home, whether or not the transaction resulted in a gain.
- Your original federally subsidized mortgage loan was provided after December 31, 1990.
- You received a federal mortgage subsidy through a QMB-funded loan or an MCC.
You may need to file the form even if the calculation shows that no recapture tax is due. For example, the form requires you to stop the calculation if the sale resulted in a loss or your modified adjusted gross income didn’t exceed the applicable adjusted qualifying income amount.
Does refinancing trigger the recapture tax?
Refinancing a federally subsidized loan, without selling or otherwise disposing of the home, doesn’t by itself trigger recapture tax.
However, a later sale during the original nine-year recapture period may still result in recapture. If you fully repaid or refinanced the original loan during the first four years, your holding-period percentage may need to be adjusted. Special continuation rules may apply when an MCC is properly reissued as part of the refinancing.
Are there exceptions or special rules?
Yes. The most common special rules include the following.
Transfer related to divorce
A transfer of the home from one spouse or former spouse to the other generally doesn’t trigger recapture if:
- The transfer is incident to divorce.
- No gain or loss from the transfer is included in or deducted from income.
In this situation, neither spouse files Form 8828 solely because of the transfer.
Home destroyed by a casualty
If the home is destroyed by a fire, storm, flood, or another casualty, there generally isn’t a recapture tax if you replace the home on its original site and use it as your main home.
The replacement period is generally two years after the end of the tax year in which the destruction occurred. A longer replacement period may apply when the home was destroyed in a federally declared disaster. If you don’t replace the home within the permitted period, you may have to file Form 8828 with an amended return for the year of the casualty.
Giving away the home
Giving the home to someone other than a spouse or former spouse as part of a qualifying divorce transfer can trigger the recapture calculation. For this purpose, the home is generally treated as if it were sold for its fair market value on the date it was transferred.
Multiple owners
When two or more people own the home and are jointly responsible for the federally subsidized mortgage, each owner generally calculates the recapture tax separately based on their ownership interest.
Qualified home improvement loan
A qualified home improvement loan funded by a QMB generally isn’t subject to federal mortgage subsidy recapture. This type of loan is limited to $15,000 and must be used for qualifying alterations, repairs, or improvements that protect or improve the home’s livability or energy efficiency.
What information will you need?
Before entering Form 8828, gather:
- The written federal mortgage subsidy notice from the lender, bond issuer, state, local government, or housing agency
- The original mortgage closing date
- The date the home was sold or otherwise disposed of
- The home’s selling price or fair market value
- Selling expenses, such as commissions and legal fees
- Your adjusted basis in the home
- The original loan repayment or refinancing date, if applicable
- Your modified adjusted gross income
- The adjusted qualifying income and maximum recapture amount from the original subsidy documents
- Your ownership percentage if the home had more than one owner
If the subsidy documents are missing, contact the original lender or the state or local agency that issued the mortgage bond or MCC.
Program Entry
To enter the recapture of a federal mortgage subsidy:
- Select Federal.
- Select Other Taxes.
- Select Recapture of Federal Mortgage Subsidy.
- Enter the requested loan, subsidy, home sale, income, and ownership information.
The program will use these details to calculate whether recapture tax applies and, if so, the amount to include on the federal return.
When is Form 8828 filed?
Attach Form 8828 to your Form 1040, U.S. Individual Income Tax Return for the year in which you sold or otherwise disposed of the home. File it by the return’s due date, including extensions.