U.S. Individual Income Tax Return

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Instructions for Form 8828

11:04 - 10-JAN-2006

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Instructions for Form 8828

Department of the Treasury
Internal Revenue Service

(Rev. December 2005)
Recapture of Federal Mortgage Subsidy

General Instructions
Section references are to the Internal
Revenue Code unless otherwise noted.

Purpose of Form
Use this form to figure and report the
recapture tax on the mortgage subsidy if
you sold or otherwise disposed of your
federally subsidized home.

Federal Mortgage Subsidy
You have a federal mortgage subsidy if
you received either of the following
benefits.
• A mortgage loan (including a qualified
rehabilitation loan) that had a lower
interest rate than was usually charged
because it was funded from a tax-exempt
qualified mortgage bond (QMB) issue.
• A mortgage credit certificate (MCC)
with your mortgage loan that you could
use to reduce your federal income taxes.
You may also have a federal mortgage
subsidy if, when you bought your home,
either:
1. You assumed the seller’s obligation
on a QMB-funded loan, provided that you
were qualified to obtain a loan from the
proceeds of a QMB, or
2. The seller’s MCC was transferred
to you with the approval of the issuer and
both the following apply:
a. You met the eligibility requirements
needed to get an MCC, and
b. The issuer of the MCC issued you
a replacement MCC.

Recapture Tax
If you sold or otherwise disposed of your
home during the first 9 years after you
received a federally subsidized QMB or
MCC loan, you may have to pay back
(recapture) all or part of the federal
mortgage subsidy you received by
increasing your federal income tax for the
year in which you sold or disposed of your
home. Refinancing of a federally
subsidized loan without a sale or
disposition of the home does not result in
recapture, but a later sale or disposition
after the refinancing may result in
recapture.

Who Must File
You must file this form if all of the
following apply. (For exceptions, see
Special Rules on this page.)
• You sold or otherwise disposed of your
home (whether or not you realized a
gain).
• Your original mortgage loan was
provided after December 31, 1990.
• You received a federal mortgage
subsidy (see Federal Mortgage Subsidy
above).

When and Where To File
Attach your Form 8828 to the Form 1040,
U.S. Individual Income Tax Return, for the
tax year in which you sold or otherwise
disposed of your home. File it when the
Form 1040 is due (including extensions).
If you have to file Form 8828, you must
use Form 1040.

Special Rules
Giving away your home. If you gave
away your home (other than to your
spouse or ex-spouse incident to divorce),
you must figure your recapture tax as if
you had actually sold your home for its
fair market value at the time of the
disposition.
Divorce. The transfer of an interest in the
home by one spouse (or former spouse)
to another does not result in recapture tax
to either person (do not file this form) if:
• It is incident to divorce, and
• No gain or loss was included in income.
See Pub. 504, Divorced or Separated
Individuals, for situations where gain or
loss is included in your income on the
transfer incident to divorce.
Destruction by casualty. If your home is
destroyed by fire, storm, flood, or other
casualty, there generally is no recapture
tax if you replace the home (for use as
your main home) on its original site within
2 years after the end of the tax year when
the destruction happened. The
replacement period is 5 years, instead of
2 years, if the home was in the Hurricane
Katrina disaster area and was destroyed
by reason of the hurricane after August
24, 2005. If you do not replace the home
in time, you must file Form 8828 with
Form 1040X, Amended U.S. Individual
Income Tax Return, for the year the home
was destroyed.
Two or more owners. In general, if two
or more persons own a home and are
jointly liable for the federally subsidized
mortgage loan, figure the actual recapture
tax separately for each, based on the
interest of each in the home.
Qualified rehabilitation loan. A qualified
rehabilitation loan (QRL) is a loan funded
by a QMB for the rehabilitation of a home
provided that:
• There were at least 20 years between
the date of the building’s first use and the
date rehabilitation began,
• A certain percentage of the walls and
framework was retained in place,
• The rehabilitation costs amounted to 25
percent or more of your adjusted basis in
the building after the rehabilitation, and
• You were the first occupant of the
home after the rehabilitation was
completed.
If you sold or disposed of this
rehabilitated building that was your home
within 9 years after you received the QRL,
Cat. No. 14075L

you must recapture the federal mortgage
subsidy. See section 143(k)(5) for details.
Home improvement loan. There is
no recapture of the federal mortgage
subsidy if instead of a QRL you received
a qualified home improvement loan
(QHIL) funded by a QMB. A QHIL is
limited to $15,000 and is to be used for
alterations, repairs, and improvements
that protect or improve the basic livability
or energy efficiency of your home. See
section 143(k)(4) for details.
The QHIL limit is $150,000, instead of
$15,000, in the case of a QHIL to repair
damage from Hurricane Katrina to homes
in the hurricane disaster area, a QHIL
funded by a QMB that is a qualified Gulf
Opportunity Zone Bond, or a QHIL for an
owner-occupied home in the Gulf
Opportunity Zone (GO Zone), Rita GO
Zone, or Wilma GO Zone. See Pub. 4492.
Qualifying subordinate mortgage loan
(or grant). A qualifying subordinate
mortgage loan (or grant) (QSML) is a loan
that can be made in addition to any QMB
or MCC federally subsidized financing. To
receive a QSML, you must agree that if
you sell your home within a 9-year period,
you either sell according to certain terms
or share any gain with the QSML
governmental lender. See section
143(k)(10). If you had a QSML, see the
line 13 instructions on page 2.
Refinancing your home. Proceeds from
a QMB cannot be used to refinance a
home mortgage. However, replacement
of construction period, bridge, or similar
temporary financing used when you first
purchased your home is not treated as
refinancing.
If, once you have received permanent
financing from the proceeds of a QMB,
the home is refinanced (with conventional
financing), the federal subsidy on your
original QMB loan is subject to recapture
when you sell or dispose of your home
within the 9-year recapture period. If you
refinance within the first 4 years after the
closing date of the original loan, you have
to adjust your holding period percentage
(see the worksheet for line 20 on page 3)
as if your loan was fully repaid on the
date of the refinancing.
An MCC can be reissued in a
refinancing if all of the following
conditions are met.
1. The issuer reissues an MCC to
replace your existing MCC, which can be
the original MCC, an MCC issued to a
transferee under Regulations section
1.25-3(p), or an MCC previously reissued
under the refinancing provisions.
2. The reissued MCC takes effect
beginning with the date you refinanced
your home (refinancing closing date).
3. The reissued MCC:
a. Applies to the same property as
your existing MCC,

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Instructions for Form 8828

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

b. Replaces entirely your existing
MCC,
c. Specifies a mortgage debt that
does not exceed the outstanding debt
balance on your existing MCC,
d. Does not increase the certificate
credit rate specified on the existing MCC,
and
e. Does not increase the allowable
credit under your existing certificate for
any tax year.
Repayment of the loan. Your holding
period percentage (line 20) may be
reduced (see the line 20 instructions) if
you:
• Repay your loan in full or refinance
other than with reissuance of an MCC (as
described earlier) within the first 4 years
after the closing date of your original loan,
and
• Sell or dispose of your home later
during the 9-year recapture period.
Other special rules may apply in
certain cases. See section 143(m).

However, Form 8828 also applies to
certain other dispositions of your home.
For instance, the date to enter on line 6
may be the date you deeded the property
to a relative (see Giving away your home
under Special Rules on page 1).
Line 8. Enter the date the original
federally subsidized loan was fully repaid.
(This may be the same as the date of sale
or other disposition on line 6.) A
refinanced QMB loan is fully repaid on the
date of its refinancing (with conventional
financing). However, a refinanced MCC
loan that met all the conditions specified
earlier under Refinancing your home on
page 1 is considered an extension of the
original MCC loan. Do not enter the
refinancing date for such an MCC on line
8. See Refinancing your home and the
instructions for line 20.

Part II—Computation of
Recapture Tax

Note. If your home was financed with a
federally subsidized loan, you should
have received notification in writing from
the bond issuer or the lender at the time
your mortgage was provided. The
notification should state that your home
was financed with a mortgage loan from
the proceeds of a tax-exempt bond or that
you received a mortgage credit certificate
with your mortgage loan. The notification
should include information needed to
figure your recapture tax and it should
advise you to keep it for your records.

Note. You must report all required
information for your interest in the home.
This may be less than 100% if someone
else also has an interest in the home (see
Special Rules on page 1).
Line 9. This item applies to both sales
and other dispositions (see Giving away
your home under Special Rules on page
1). If your home was disposed of other
than by sale, the sales price is the fair
market value of the home at the time of
the disposition. You should report only the
part of the sales price representing your
interest in the home (see Two or more
owners and Qualifying subordinate
mortgage loan (or grant) under Special
Rules on page 1).

Name(s) and social security number.
The name(s) and social security number
on Form 8828 should be the same as
those shown on your Form 1040.

Line 10. Include sales commissions,
advertising, legal fees, etc., allocable to
your interest in the home.

Specific Instructions

Part I—Description of Home
Subject to Federally Subsidized
Debt
Line 1. List the address of the property
that was subject to the federally
subsidized debt, not your current address
as shown on your Form 1040.
Line 2. Check the applicable box on line
2 from the information on the notification
given to you at the time you took out the
loan.
Line 3. Fill in the requested information
from the notification discussed above. If
you have a problem identifying the issuer,
contact your lender and ask for the
information.
Line 4. Fill in the name and address of
the bank or other lender that provided
your original mortgage.
Line 5. Fill in the month, day, and year
that your original federally subsidized
mortgage loan was provided. This
generally is the date of settlement on your
home. However, if the loan became
federally subsidized debt at a later date,
use that date instead.
Line 6. Fill in the applicable month, day,
and year. Date of sale generally is the
date you settled on the sale of your home.

Line 12. In general, the adjusted basis of
your interest in the home is your share of
the cost of the property plus purchase
commissions and improvements, minus
depreciation. Do not reduce the adjusted
basis for any gain that you did not
recognize on the sale of a previous home.
If you received your home, or interest
in a home, incident to a divorce, your
adjusted basis is generally the same as
that of your spouse (or former spouse).
For details on how to determine your
adjusted basis, get Pub. 551, Basis of
Assets.
Line 13. Enter “QSML” on the dotted line
to the left of the line 13 entry space if you
sold your home at a gain within the 9-year
recapture period and paid a share of that
gain to the QSML governmental lender. In
the amount column for line 13, enter your
share of the gain. Attach a worksheet to
your Form 8828 to explain how you
calculated your share of the gain. Show
the date you paid the QSML
governmental lender its share of the gain
and the amount of that share. See
Qualifying subordinate mortgage loan (or
grant) on page 1.
Line 15. Figure your modified adjusted
gross income as follows:

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• Begin with: Your adjusted gross
income as shown on your Form 1040.
• Add: Any tax-exempt interest that you
received or accrued for the tax year.
• Subtract: Any gain included in your
gross income because of the disposition
of your home.
Line 16. If your home was financed with
a federally subsidized loan, you should
have received notification in writing from
the bond issuer or the lender at the time
your mortgage was provided. The
notification contains a table which lists
adjusted qualifying income figures. Your
adjusted qualifying income is found in the
column of the table that corresponds to
your family size (number of family
members living with you at the time of the
sale) on the line that corresponds to the
number of full and partial years that you
held your home.
Line 19. The federally subsidized amount
should be found on the notification you
received from the bond issuer or from
your lender. It is equal to 6.25% of the
highest amount of the loan that was
federally subsidized. Enter the figure on
line 19.
Line 20. You will find your holding period
percentage on the same line of the table
from which you obtained your adjusted
qualifying income (see line 16
instructions). However, if you fully repaid
the federally subsidized loan within 4
years of the closing date of the loan, and
before selling or otherwise disposing of
your home, you will need to use the
worksheet on page 3 to redetermine your
holding period percentage for line 20.
Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of the
United States. You are required to give us
the information. We need it to ensure that
you are complying with these laws and to
allow us to figure and collect the right
amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records relating
to a form or its instructions must be
retained as long as their contents may
become material in the administration of
any Internal Revenue law. Generally, tax
returns and return information are
confidential, as required by section 6103.
The average time and expenses
required to complete and file this form will
vary depending on individual
circumstances. For the estimated
averages, see the instructions for your
income tax return.
If you have suggestions for making this
form simpler, we would be happy to hear
from you. See the instructions for your
income tax return.

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Instructions for Form 8828

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Worksheet for figuring the holding period percentage if you fully repaid the original federally subsidized loan: (1) before the
date of sale or disposition of your home and (2) within the first 4 years after the closing date of the original loan. (Keep for
your records.) (Do not use this worksheet if lines 6 and 8 of Form 8828 are the same date.)
A.

A. Closing date of original loan. Enter the date from Form 8828, line 5

B. Repayment date. Enter the date from Form 8828, line 8
If the repayment date on line B is more than 4 years after the closing date on line A, do not use
this worksheet.

Month

Day

Year

Month

Day

Year

B.

C. Enter the number of years between the dates on lines A and B. Round up to the nearest whole
C.
year
Years

D.

If the number of years on line C is:

Enter this percentage:

1
2
3
4

20%
40%
60%
80%

%

D.
E.

E. Sale date. Enter the date from Form 8828, line 6

Month

Day

Year

F. Enter the number of years between the dates entered on lines B and E. Round up to the nearest
F.
whole year
Years

G.

If the number of years on line F is:

Enter this percentage:
100%
80%
60%
40%
20%
0%

1
2
3
4
5
6 or more

G.

%

H. Multiply the percentage on line D by the percentage on line G. Round to the nearest whole
percentage. This is your adjusted holding period percentage to enter on line 20 of Form 8828. If
this percentage is zero, you will have no recapture, but you still must complete and file Form 8828 H.

%

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