Affordable housing finance
Recapture
IRC § 42(j)'s clawback of the accelerated third of previously claimed credits, plus interest, when noncompliance hits during the 15-year period.
Definition
Credits are claimed over ten years but earned over fifteen, so each year's claim includes an accelerated portion — one-third of it. When qualified basis drops during the 15-year compliance period — an over-charged rent, a non-qualifying household, a failed minimum set-aside, an uncured casualty — IRC § 42(j) recaptures that accelerated portion of prior credits, with nondeductible interest, and the current year's credits shrink or disappear. Since 2008, sales no longer require posting a bond: disposition recapture applies only where the building is not reasonably expected to remain qualified. The examiner's playbook is the § 42 Audit Technique Guide.
Why it matters in an underwrite
Recapture lands on the investor, which is why partnership agreements bristle with compliance covenants, cure rights and sponsor indemnities. For an operator the arithmetic is asymmetric: a few hundred dollars of rent overage on one unit can trigger recapture and credit loss worth many multiples of it. And because exposure dies at year 15, it defines both Year-15 pricing and how hard investors police years 13–15 before they exit.
Sources & related guides
See also
See the term in the law itself
Read the controlling text in the Code Library, or ask the AI how it applies to your project.
Last reviewed 2026-07-29. General information, not legal advice.