IRS Instruction 8828 – IRS Forms, Instructions, Pubs 2026 – If you sold or disposed of a home financed with a federally subsidized mortgage (such as a Qualified Mortgage Bond loan or Mortgage Credit Certificate), you may owe a recapture tax. The IRS uses Form 8828 to calculate and report this tax. The latest official instructions (Revision November 2024) remain current for 2025 and later filings.
This SEO-optimized guide explains everything homeowners need to know: who must file, when to file, how to calculate the recapture amount, step-by-step line instructions, special rules, and common questions. All information comes directly from the official IRS Instructions for Form 8828 (November 2024) and the related form.
What Is the Federal Mortgage Subsidy Recapture Tax?
The federal government offers subsidized mortgages through two main programs:
- Qualified Mortgage Bonds (QMB) — Tax-exempt bond-funded loans with below-market interest rates.
- Mortgage Credit Certificates (MCC) — Certificates that provide a tax credit on mortgage interest.
If you received one of these subsidies and sell (or otherwise dispose of) the home within the first 9 years, you may have to “recapture” (pay back) part or all of the subsidy as additional federal income tax. The recapture tax increases your tax liability in the year of sale.
Important: Refinancing alone does not trigger recapture. However, a later sale within the 9-year period may still require Form 8828.
Who Must File Form 8828?
You must file Form 8828 if all of the following are true:
- You sold or otherwise disposed of your home (gain or loss does not matter).
- The original federally subsidized mortgage loan was provided after December 31, 1990.
- You received a federal mortgage subsidy (QMB loan or MCC).
Exceptions (no filing required):
- You never received a federal subsidy.
- The home was sold more than 9 years after the loan was provided.
- The loan was a qualified home improvement loan (QHIL) funded by a QMB (limited to $15,000 for basic livability/energy improvements).
Joint owners must generally calculate their recapture tax separately based on their ownership percentage.
When and Where to File Form 8828
Attach Form 8828 to your Form 1040, 1040-SR, or 1040-NR for the tax year in which you sold or disposed of the home. File it by the due date of your return (including extensions).
Special cases:
- Home destroyed in a casualty — If you replace it on the original site within 2 years (extendable in federally declared disaster areas), no recapture. Otherwise, file an amended return (Form 1040-X) for the year of destruction. See Pub. 547.
- Divorce transfer — Generally no recapture if the transfer is incident to divorce and no gain/loss is recognized.
How to Calculate the Recapture Tax – Key Concepts?
The IRS Instructions for Form 8828 provide a worksheet-style computation in Part II. You will need your written notification from the bond issuer or MCC issuer. This notification contains critical tables and figures:
- Adjusted qualifying income (based on family size and years held).
- Holding period percentage.
- Highest amount of the federally subsidized loan.
Core elements of the calculation:
- Federally subsidized amount (Line 19) → 6.25% of the highest federally subsidized loan amount.
- Holding period percentage (Line 20) → From the issuer’s table (or adjusted via worksheet if the loan was fully repaid within the first 4 years).
- Net gain on sale → Sales price minus selling expenses minus adjusted basis.
- Modified adjusted gross income (Line 15) → Used to determine the income-based portion.
The final recapture amount is the result of a formula that multiplies the subsidized amount (adjusted for holding period and any QSML payment) by the ratio of your net proceeds to the adjusted qualifying income. The tax cannot exceed the actual subsidy benefit received.
Holding Period Percentage Worksheet (use only if the original loan was fully repaid before the sale and within the first 4 years):
- Enter closing date of original loan.
- Enter repayment date.
- Calculate years between them (round up) → percentage: 1 yr = 20%, 2 yrs = 40%, 3 yrs = 60%, 4 yrs = 80%.
- Calculate years from repayment to sale → percentage: 1 yr = 100%, 2 = 80%, 3 = 60%, 4 = 40%, 5 = 20%, 6+ = 0%.
- Multiply the two percentages and round to the nearest whole percent.
If the adjusted percentage is 0%, you still file Form 8828 but owe no recapture tax.
Step-by-Step Guide to Filling Out Form 8828
Part I – Description of Home Subject to Federally Subsidized Debt
- Line 1 — Address of the sold home (not your current address).
- Line 2 — Check QMB or MCC (per your notification).
- Line 3 — Issuer name, address, and EIN (from notification).
- Line 4 — Original lender name and address.
- Line 5 — Date the original subsidized loan was provided.
- Line 6 — Date of sale or disposition.
- Line 8 — Date the loan was fully repaid (usually the sale date; different for refinancing or MCC reissuance).
Part II – Computation of Recapture Tax
- Line 9 — Sales price or fair market value at disposition (your ownership share only).
- Line 10 — Selling expenses (commissions, legal fees, etc., your share).
- Line 12 — Adjusted basis (cost + improvements – depreciation; your share). In divorce situations, basis usually carries over from the former spouse.
- Line 13 — If you had a Qualifying Subordinate Mortgage Loan (QSML), enter “QSML” and the amount of gain you paid to the governmental lender. Attach a worksheet with details.
- Line 15 — Modified adjusted gross income (AGI from Form 1040 + tax-exempt interest – gain from this home sale).
- Line 16 — Adjusted qualifying income (from issuer notification table, based on family size and years held).
- Line 19 — Federally subsidized amount = 6.25% × highest subsidized loan amount (from notification).
- Line 20 — Holding period percentage (from notification table or worksheet).
The form then computes the recapture tax (typically Line 21). Enter the result on your Form 1040 Schedule 2 (Additional Taxes).
Names and SSNs on Form 8828 must match your tax return exactly.
Special Rules and Exceptions
- Qualified Rehabilitation Loan (QRL) — Recapture applies if sold within 9 years; must meet strict criteria (20+ years since first use, walls/framework retained, rehab costs ≥25% of basis, first occupant after rehab).
- Two or more owners — Each owner calculates separately based on ownership interest.
- Giving away the home — Treat as sold at fair market value (except certain divorce transfers).
- Refinancing — Conventional refinancing treats the original subsidy as repaid (adjust holding percentage if within 4 years). QMB proceeds generally cannot refinance an existing mortgage.
- Disaster-destroyed homes — Special replacement rules and possible extensions under section 143(k)(13).
Common Questions (FAQs)
- Do I owe recapture tax if I had no gain on the sale?
Yes, you may still owe if the formula produces a positive amount. File Form 8828 even if the tax is zero. - Where do I get the numbers for Lines 16, 19, and 20?
Your original lender or bond issuer provided a written notification with the required table and loan amounts. Contact them if you no longer have it. - What if I refinanced the mortgage?
Refinancing does not trigger recapture, but the original subsidy is considered repaid on the refinancing date for holding-period purposes. - Can I avoid recapture?
The only sure ways are to hold the home more than 9 years or replace a destroyed home within the allowed period. Otherwise, the tax is mandatory if the formula results in a positive amount.
Where to Get the Official Forms and Instructions?
- Current Form 8828 (Rev. November 2024) → irs.gov/pub/irs-pdf/f8828.pdf
- Instructions for Form 8828 (Rev. November 2024) → irs.gov/pub/irs-pdf/i8828.pdf (the PDF linked in your query)
- About Form 8828 → irs.gov/forms-pubs/about-form-8828
Related IRS Publications:
- Pub. 523 – Selling Your Home
- Pub. 547 – Casualties, Disasters, and Thefts
- Pub. 551 – Basis of Assets
- Pub. 504 – Divorced or Separated Individuals
Final Tips
- Keep your original lender notification forever — it is required for accurate calculation.
- Calculate your recapture before filing your tax return. Tax software may automatically generate Form 8828 if you enter the necessary data.
- Consult a qualified tax professional or use IRS Free File if your situation involves multiple owners, QSML, divorce, or a disaster.
This guide is for informational purposes only and is based entirely on the official IRS Instructions for Form 8828 (November 2024). Tax laws can change, and your specific situation may require professional advice. Always refer to the latest IRS documents and consult a tax advisor for personalized guidance.
Last updated: February 2026 (based on current IRS publications). For prior-year versions, visit the IRS prior-year forms page.