NOTICE TO MORTGAGOR OF POTENTIAL FEDERAL
RECAPTURE TAX ON SALE OF HOME
(To be completed by Mortgage Lender)
THIS NOTICE APPLIES ONLY TO MORTGAGE LOANS CLOSED ON OR AFTER
JANUARY 1, 1991.
This notice is intended to inform you of potential federal recapture tax on certain sales or
other dispositions of your residence. The tax is payable only if you dispose of your
residence. There is no tax if you realize no gain on the disposition of your residence or if
your income does not increase above specified levels.
If you dispose of your residence within nine years of the date the mortgage loan is made,
you may be required to pay to the United States a recapture amount of up to 6.25 percent
of the original principal amount of the mortgage loan. Your maximum recapture amount is
$ _______________________ (i.e., 6.25 percent of $ _______________________ .)
The recapture amount is payable with your income tax for the year during which you
dispose of your residence by sale, exchange or gift.
The recapture amount (which may be reduced as described below depending upon your
family income) is the maximum recapture amount described above multiplied by the holding
period percentage. The holding period of percentage during the first and following years
after making your loan is as follows:
1st 20% 6th 80%
2nd 40% 7th 60%
3rd 60% 8th 40%
4th 80% 9th 20%
In effect, the recapture amount begins at 1.25 percent of the original amount of your
mortgage loan during the first year and then increases by 1.25 percent during each of the
next four years after the loan is made to a maximum of 6.25 percent of the original amount
of your mortgage loan during the fifth year. After five years, the recapture amount
decreases by 1.25 percent during each year until it is eliminated after the ninth year.
The recapture amount calculated above may be reduced or eliminated depending upon
whether or by how much your family's modified adjusted gross income for the year during
which you dispose your residence exceeds the applicable "adjusted qualifying income."
Your family's adjusted gross income is modified to include interest on tax-exempt bonds
and to exclude any gain on the sale of your residence. The adjusted qualifying income is a
formula amount based on either the area or the statewide median income of similar sized
families, whichever is higher, for the year during which the mortgage loan is made. The
adjusted qualifying incomes applicable to your area for each category of family size of the