Wisconsin HEDA Eliminates Recapture Tax Liability for Home Buyers

“This change effectively eliminates one of the longstanding concerns that lenders, REALTORS® and home buyers have had over the years relating to a WHEDA mortgage,” said Wyman Winston, Executive Director of WHEDA. “Lenders and REALTORS may now confidently recommend a WHEDA loan to borrowers with qualifying income – even those whose income is near the high-end of the range to qualify – knowing that they will never have to pay a recapture tax.”

 

Recapture tax is a federal tax that a home buyer may have to pay to the Internal Revenue Service (IRS) if they sell their WHEDA-financed home within the first nine years of the purchase date, receive a net profit on the sale of the home, and exceed the maximum WHEDA household income limit at the time of sale. All three provisions must occur at the time of sale for any potential recapture tax obligation to apply.

 

The IRS requires recapture tax for WHEDA mortgages, which are funded through the sale of tax-exempt mortgage revenue bonds. This requirement helps ensure compliance with WHEDA’s mission of helping low- to moderate-income working families attain homeownership.

 

"In past years, the term ‘recapture tax’ has carried a negative connotation for both the real estate community and our home buyers," said Bill Malkasian, President of the Wisconsin REALTORS® Association. "WHEDA’s new reimbursement policy does away with any anxiety of possible recapture tax, and helps us focus on getting more working families in a home with a low-cost WHEDA mortgage."

 

The maximum amount homeowners could previously have been required to pay in recapture tax was 6.25% of their original mortgage. For example, if a homeowner’s original loan amount was $80,000, then the maximum recapture tax would have been $5,000.

 

"The recapture tax did cause some home buyers to think twice about going with a WHEDA loan," said Daryll Lund, President of the Community Bankers of Wisconsin. "This is a positive step taken by WHEDA. Now our community banks can feel that much more confident in recommending that home buyers consider financing their first home with WHEDA."

 

To complete the reimbursement process, WHEDA borrowers will be required to complete and submit a Request for Recapture Tax Reimbursement Form, which can be found on WHEDA’s web site.

WHEDA is a public body corporate and politic created in 1972 by the Wisconsin Legislature that provides low-cost financing for housing and small business development in Wisconsin. WHEDA does not rely on state tax revenue. Instead, the Authority raises capital through proceeds from the sale of revenue bonds and from interest earned on loans. For more information on WHEDA’s housing programs, call 800-334-6873 or browse this web site.