Does a refinance activate the Recapture Tax?
No, however, it does not eliminate the Recapture Tax either. If you refinance your loan and then sell your home within the first 9 years of ownership, the potential for a Recapture Tax still exists. If you refinance during the first four years of ownership and then hold the property for more than 18 months, any potential Recapture Tax will be reduced. See the IRS Form 8828. Go to Top of Recapture | Go to Top of Main Is it true I lose half of the gain on the sale of my house to Recapture? Not usually. A gain is required for a Recapture Tax to be assessed; however, the amount of the gain can only cause the Recapture Tax to be reduced, never increased. The formula looks at 50% of the gain to see if it is less than the calculated Recapture Tax, and, if it is, you pay that lower amount. The Federal Tax provision did not want a borrower to pay more in taxes than they gained on the sale of the property. The Recapture Tax is limited to the lesser of the amount of the calculated tax, or 50% of
