Recapture Tax

When you apply for FHA financing or first time homebuyer loans to buy a home, you get different benefits including low interest rates and down payment assistance. Some of the benefits are "recapture" according to federal law if,

• you sell the home before nine years of ownership.
• you gain from the sale of your house.
• your income increases significantly (more than 5% per year) in nine years.

You don't have to pay the recapture tax if,

• you sell the house after nine years of ownership.
• you don't gain by selling your home.
• your income does not increase significantly in the past nine years.
• your home is destroyed by fire, storm, flood or any other casualty.
• you transfer your home to your spouse and no profit or loss is included in your income by the transfer of the property.

The money you owe will be lesser of the 50% of the gain by selling the home or 6.25% of the original loan amount.