Federal Subsidy Recapture

To understand what a federal subsidy recapture is, we first gotta look at the lay of the federal mortgage subsidy land. People can apply for and receive a federal subsidy to buy a house under certain conditions.

For instance, a homebuyer might be eligible for a mortgage credit certificate with a mortgage loan, or may get a mortgage at a super low interest rate because it was funded via a qualified mortgage bond, which is tax-exempt. People who get these are getting a federal mortgage subsidy.

When a federal subsidy is “recaptured,” it means the part of the mortgage that was funded by the federal government must be repaid and “given back,” which happens when the home is sold (or, abandoned) within nine years of getting that federally subsidized home loan. A federal subsidy recapture isn’t needed if you sell the house nine years later.

How does the government get its money back? Through increased federal income taxes the year the house is sold, for whoever the house seller is. Gotta make it past that nine year itch with the house to avoid a tax hike.