Recapture, in the context of the Internal Revenue Code, refers to the requirement that upon sale of property the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains. The purpose of the recapture tax is to retrieve the tax credit subsidy from homeowners who experience rapid income increases after purchasing their homes, and, as a result, do not need the subsidy to remain homeowners. If your income does not increase more then 5 percent each year it is not likely that you will incur a recapture liability.
No recapture tax is due if you:
- Sell a home after 9 years
- Sell a home with no gain
- Have income within federal limits
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