Households who finance the purchase of their home with a mortgage provided by SONYMA are, in rare cases, required to pay what is known as the Federal recapture tax. However, Governor Spitzer recently signed a law that now allows SONYMA to reimburse its borrowers who become liable for the tax after they sell their home. Any borrower who closes a SONYMA mortgage on or after July 17, 2007, will be able to obtain this reimbursement.
Under the federal recapture tax, if a home purchased with a SONYMA mortgage is sold within nine years-and the owner’s income has significantly increased and the value of the home has increased during that period-then the owner could be liable for the federal recapture tax.
In reality, very few SONYMA borrowers are required to pay the tax. However, the threat of that tax liability often deters potential homebuyers from seeking a SONYMA loan, which offers significantly lower monthly charges than a conventional mortgage.
SONYMA created the Federal Recapture Tax Reimbursement program because the tax often causes undue concern among potential borrowers as they consider whether to buy their first home with a mortgage provided by SONYMA. While few SONYMA borrowers ever have to pay the recapture tax, the reimbursement program will put borrowers at ease knowing they will be reimbursed if they have any tax liability.
The Federal recapture tax applies to certain homeowners because Federal law provides that homeowners who receive a loan financed with the sale of tax exempt mortgage revenue bonds (like a SONYMA loan) may be required, in limited circumstances, to repay a portion of their gain upon sale or transfer of their home.
The objective of the tax is to enable the federal government to collect, or recapture, an amount based on the difference between what the borrower paid in interest on the loan financed through tax-exempt bonds and what the borrower would have paid if a market rate mortgage had been obtained.
However, the tax is ONLY due if a home is sold within 9 years of purchase, the borrower’s household income has increased (in most cases, the income must increase substantially) and the value of the home increases.
For more detailed information about the federal recapture tax, borrowers are advised to consult a tax advisor. SONYMA does not provide individual tax advice.
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