1. DEAL MAKER’S MARKETPLACE CONFERENCE Single Family Program Recapture Tax Provision January 25, 2005

2. What is a Recapture Tax? IRS provision that is part of all NIFA loans closed on or after 1-1-91 IRS treats a NIFA loan as a federal mortgage subsidy due to low interest rate created by tax-exempt financing Applies to MRB and MCC loans

3. How long is Recapture Period? In effect for first nine years of loan Triggered upon sale or disposition of property before end of nine years Refinancing loan does not trigger recapture tax

4. Who is Required to File Recapture Form 8828? Borrower who sold property during nine year period from closing NIFA loan was closed on or after 1-1-91 Must use form 1040 if required to file form 8828

5. When is Form 8828 Filed? Filed during tax year when property was sold or disposed Borrower is responsible for complying with filing of form with tax return NIFA will not compute recapture tax Borrower should seek advice from tax consultant or IRS

6. Disclosure of Recapture Tax NIFA requires lender to provide recapture tax notice to borrower at loan application NIFA requires lender to provide a final notice at loan closing Notice is amended when maximum income limits change

7. Events that Affect Recapture Calculation Each of the following events must occur to trigger the tax: 1) home is sold within nine years from closing 2) borrower realizes a gain as defined by IRS 3) borrower’s income has increased since closing

8. Income Table Example LINCOLN MSA (Lancaster County)

9. NIFA Reimbursement Policy New policy for all loans closed on or after June 1, 2004 NIFA will reimburse borrower who is required to pay IRS recapture tax Borrower is responsible for applying to NIFA for reimbursement

10. Reimbursement Requirements Borrower must apply to NIFA by July 15 th of calendar year following the year home was sold NIFA mortgage loan was outstanding at time of sale (i.e. refinanced loans do not qualify) Submit reimbursement request form and signed IRS form 4506

11. Additional Information Please visit NIFA’s website at www.nifa.org for more informationwww.nifa.org Questions directed to single family department at (402) 434-3900 or toll free at (800) 204-6432