Tax Recapture Bond

[Mother Bond]

What is the purpose of a Tax Recapture Bond? And is this a difficult bond to obtain?

[lifeisgood]

The Internal Revenue Code in 26 USC 42(j) allows investors in low income housing to take tax credits for 10 years with the stipulation that the property remains as low income housing for 15 years. These tax credits are subject to recapture if the investor alters the nature of the property during the compliance period or sells their interest in the property during the 15 year compliance period and the buyer fails to maintain the property as low income housing for the remainder of the 15 years term. Upon sale of the property an investor is permitted to post a surety bond in the amount of the tax credits they have claimed previously in lieu of paying the back taxes upon transfer. If the seller fails to pay taxes owed, the surety will step in, pay the taxes and then pursue the recovery from the investor under the indemnity agreement between the surety and the seller, which is part of the bonding process.

The surety will make their decision based on the financial strength of the applicant(s) to determine whether or not the applicant(s) qualify for this bond.

[Admin]

I never heard of a tax recapture bond. Thanks for the excellent explanation.

It just goes to show you that the learning process never ends when it comes to suretyship!