Taxation · Taxation
Other taxes
tax year · reviewed 2026-08-19 · Draft for I. Ohu review
This is the line where things that are not income tax end up. Most of them share a shape: a benefit was taken in an earlier year on a condition, the condition failed, and the benefit is being clawed back. Knowing that shape makes the individual provisions easier to keep straight than learning them as a list.
The rule
First-time homebuyer credit — the annual repayment. 6⅔ percent of the credit for each taxable year of the 15-year recapture period, which begins with the second taxable year after the year of purchase — so a $7,500 credit repays at $500 a year (IRC § 36(f)(1), (7))TY2026 This is the version that still appears on returns: the 2008 credit was structured as an interest-free loan repaid over fifteen years, and taxpayers who bought in that window are in the closing years of it.
And the acceleration. disposing of the residence, or its ceasing to be the principal residence, before the end of the recapture period accelerates the whole unrecaptured balance into that year — capped, on a sale to an unrelated person, at the gain on the sale (IRC § 36(f)(2), (3))TY2026 The gain cap is the part most often missed: a taxpayer who sells at a loss to an unrelated buyer repays nothing further.
Three exceptions. no recapture for any taxable year ending after the taxpayer's death; no acceleration on an involuntary conversion where a new principal residence is acquired within two years, the new residence taking the old one's place; and no acceleration on a § 1041(a) transfer between spouses or incident to divorce, the transferee taking on the obligation (IRC § 36(f)(4)(A)–(C))TY2026
The § 965 transition tax. A one-time inclusion enacted in 2017 on the accumulated post-1986 deferred foreign income of specified foreign corporations. What survives on individual returns is the payment schedule: the IRC § 965 transition tax could be paid in eight instalments — 8 percent of the net tax liability for each of the first five, then 15, 20 and 25 percent — with the first due on the unextended due date for the § 965(a) inclusion year and each later one on the following year's unextended due date (IRC § 965(h)(1), (2))TY2026 An individual who made the election is still paying instalments, and the amount due each year is a fixed percentage of a liability determined years ago.
Excess contributions. 6 percent of the excess contributions to an individual retirement account, Archer MSA, individual retirement annuity, Coverdell account, health savings account or ABLE account, imposed for each taxable year the excess remains and capped at 6 percent of the account value at the close of the year (IRC § 4973(a))TY2026 The tax repeats every year the excess is left in the account, which is what turns a modest over-contribution into a real cost if it is not withdrawn.
Excess accumulations. 25 percent of the shortfall where less than the required minimum distribution is taken, payable by the payee (IRC § 4974(a))TY2026 The rate is 25 percent, reduced where the shortfall is corrected within the correction window — the figure of 50 percent that appears in older material is no longer the law.
Early distributions. 10 percent of the portion of an early distribution from a qualified retirement plan that is includible in gross income, subject to the exceptions in IRC § 72(t)(2)TY2026
The shared responsibility payment. zero — IRC § 5000A(c)(3) still sets out the flat dollar amount and § 5000A(c)(2)(B) the percentage of income, but the percentage is zero for taxable years beginning after 2018 and the flat amount is zero, so the section remains in the Code imposing nothingTY2026 Section 5000A still imposes the requirement to maintain minimum essential coverage and still describes a penalty in elaborate detail. Reading the section without reaching § 5000A(c)(2)(B)(iii) and (c)(3)(A) will produce a confident and entirely wrong answer.
Others that reach the same line. Recapture of an education credit where a refund of qualified expenses is received, the additional tax on a distribution from a health savings account not used for qualified medical expenses, the additional tax on an ABLE or Coverdell distribution, and the § 1291 interest charge on an excess distribution from a passive foreign investment company.
Current figures
| Item | Amount |
|---|---|
| Homebuyer credit repayment | 6⅔ percent of the credit for each taxable year of the 15-year recapture period, which begins with the second taxable year after the year of purchase — so a $7,500 credit repays at $500 a year (IRC § 36(f)(1), (7))TY2026 |
| Acceleration | disposing of the residence, or its ceasing to be the principal residence, before the end of the recapture period accelerates the whole unrecaptured balance into that year — capped, on a sale to an unrelated person, at the gain on the sale (IRC § 36(f)(2), (3))TY2026 |
| Exceptions | no recapture for any taxable year ending after the taxpayer's death; no acceleration on an involuntary conversion where a new principal residence is acquired within two years, the new residence taking the old one's place; and no acceleration on a § 1041(a) transfer between spouses or incident to divorce, the transferee taking on the obligation (IRC § 36(f)(4)(A)–(C))TY2026 |
| § 965 instalments | the IRC § 965 transition tax could be paid in eight instalments — 8 percent of the net tax liability for each of the first five, then 15, 20 and 25 percent — with the first due on the unextended due date for the § 965(a) inclusion year and each later one on the following year's unextended due date (IRC § 965(h)(1), (2))TY2026 |
| Excess contributions | 6 percent of the excess contributions to an individual retirement account, Archer MSA, individual retirement annuity, Coverdell account, health savings account or ABLE account, imposed for each taxable year the excess remains and capped at 6 percent of the account value at the close of the year (IRC § 4973(a))TY2026 |
| Excess accumulations | 25 percent of the shortfall where less than the required minimum distribution is taken, payable by the payee (IRC § 4974(a))TY2026 |
| Early distributions | 10 percent of the portion of an early distribution from a qualified retirement plan that is includible in gross income, subject to the exceptions in IRC § 72(t)(2)TY2026 |
| Shared responsibility | zero — IRC § 5000A(c)(3) still sets out the flat dollar amount and § 5000A(c)(2)(B) the percentage of income, but the percentage is zero for taxable years beginning after 2018 and the flat amount is zero, so the section remains in the Code imposing nothingTY2026 |
How it works in practice
Look at the prior year’s return before anything else. Most of these are continuing obligations rather than events of the current year — a homebuyer repayment instalment, a § 965 instalment, a recurring excess contribution tax. They do not announce themselves in the current year’s documents, and the commonest failure is simply omitting one because nothing in the mail mentioned it.
Then ask what changed about the property or the account. A residence sold, a home that stopped being the principal residence, an excess contribution not withdrawn, a required minimum distribution missed — each of these turns a dormant provision into a current liability.
Then check whether an exception applies before computing anything. The homebuyer provisions in particular have three, and the gain cap can reduce an accelerated repayment to nothing.
Then remember these are additions to tax, not reductions. They are not affected by nonrefundable credits, and several of them — the excise taxes in particular — are payable even by a taxpayer with no income tax at all.
The sale that ends the repayments
The Okories claimed the 2008 first-time homebuyer credit of $7,500 and have been repaying $500 a year. Twelve instalments have been paid, leaving $1,500 outstanding. In 2026 they sell the house to an unrelated buyer for $6,000 less than their adjusted basis, computed after reducing basis by the unrecaptured credit.
Section 36(f)(2) would accelerate the whole $1,500 into 2026. But § 36(f)(3) caps the increase at the gain on a sale to an unrelated person, and there is no gain — so nothing further is due, and § 36(f)(2)(B) switches off the annual instalments for that year and every year after. Had they sold at a $900 gain, the repayment would have been $900 and the remaining $600 would have been extinguished.
The excess that compounds
Farah contributed $9,000 to a traditional individual retirement account for 2024, $1,500 more than she was entitled to, and did not withdraw the excess.
Section 4973(a) imposes 6 percent of the excess for 2024 — $90 — and again for 2025, and again for 2026, for as long as the excess remains in the account at the close of the year. Three years of inattention have cost $270 on a $1,500 mistake. Withdrawing the excess, with the net income attributable to it, stops the tax prospectively; it does not undo the years already accrued.
Reading § 5000A without the dates
A client asks whether they owe a penalty for having gone without health coverage for eight months of 2026.
Section 5000A(a) still requires an applicable individual to maintain minimum essential coverage, and § 5000A(b) still imposes a penalty for failing to. But § 5000A(c)(2)(B)(iii) sets the percentage of income at zero for taxable years beginning after 2018, and § 5000A(c)(3)(A) sets the applicable dollar amount at $0. The monthly penalty amount is the greater of two figures that are both zero. The answer is nothing — but only because two subparagraphs deep in the computation say so, and nothing in the section’s operative language does.
The gain cap applies only to a sale to an unrelated person. A transfer to a related party accelerates the full unrecaptured balance regardless of the price.
The homebuyer recapture period starts late. It runs from the second taxable year after the year of purchase, not from the year of purchase.
Death ends the recapture for any taxable year ending after it — not just the acceleration, but the annual instalments too.
Excess contribution tax recurs. It is not a one-off penalty; it is imposed for each taxable year the excess remains.
The excess accumulation rate is 25 percent, not 50. A source giving 50 percent predates the change, and the log at 1.2.2.h records a bank question keyed to the old figure.
Section 5000A is still in the Code and imposes nothing. The zeroing is in the definitions, not in the operative subsections.
The § 965 instalments are not equal. They rise from 8 percent to 25 percent across the eight years, so a taxpayer who budgeted the first year’s figure will be short.
These are additions to tax. Nonrefundable credits do not reduce them, and they are payable by a taxpayer with no income tax liability.
How this has changed
Two of these provisions are best understood as archaeology, and one has moved recently.
The first-time homebuyer credit was repealed for purchases after the 2008–2010 window, but § 36(f) survives because the 2008 version created a fifteen-year obligation. Those repayments are now in their final years, and the practical question on most returns is not how the recapture works but whether the client still has one running — the IRS account transcript is the reliable answer, because the taxpayer frequently does not know.
Section 965 is the same shape at larger scale: the inclusion happened once, in a taxable year now long closed, and what remains is a payment schedule under § 965(h) that a small number of individual returns still carry.
The provision that moved is § 4974. The excise tax on a missed required minimum distribution was 50 percent for decades and is now 25 percent, with a further reduction where the shortfall is corrected promptly. Any material written before that change overstates the exposure by double, and the bank question logged at 1.2.2.h does exactly that.
Section 5000A is the clearest case on this project of a section left standing after its effect was removed. It is worth treating as the template for a category: the operative language is untouched, the repeal is accomplished by setting definitional amounts to zero, and a reader who stops before the definitions gets the wrong answer with complete confidence. The same reading discipline applies to § 35 (logged at 1.3.2.h) and to § 5000A alike.
Exam focus
Expect the first-time homebuyer credit to be tested on its mechanics: fifteen years, 6⅔ percent a year, acceleration on disposition, capped at gain on a sale to an unrelated person. The 2008 credit is the one with the repayment obligation.
Know that the excess contribution tax recurs annually and the excess accumulation tax is 25 percent. Know that § 72(t) is 10 percent of the includible portion, with a list of exceptions.
Know that the shared responsibility payment is zero and why — the definitional zeroing rather than a repeal of the requirement.
And know the general character: these are additions to tax, not reductions, and they survive a taxpayer having no income tax liability at all.
Check yourself
1. A taxpayer claimed the 2008 first-time homebuyer credit. How is it repaid?
Answer: In equal annual instalments of 6⅔ percent of the credit across a 15-year recapture period beginning with the second taxable year after the year of purchase — $500 a year on the maximum $7,500 credit (IRC § 36(f)(1), (7)).
2. The same taxpayer sells the home to an unrelated buyer at a loss before the period ends. What is owed?
Answer: Nothing further. IRC § 36(f)(2) accelerates the unrecaptured balance into the year of disposition, but § 36(f)(3) limits the increase to the gain on a sale to an unrelated person, and there is no gain. Section 36(f)(2)(B) then switches off the annual instalments for that year and after.
3. An excess individual retirement account contribution is left in place for four years. How many times is the § 4973 tax imposed?
Answer: Four. The tax is 6 percent of the excess determined as of the close of each taxable year, so it recurs for every year the excess remains in the account, capped at 6 percent of the account value.
4. Does a taxpayer with no income tax liability owe the tax on a missed required minimum distribution?
Answer: Yes. IRC § 4974(a) imposes the tax on the payee at 25 percent of the shortfall regardless of income tax liability, and nonrefundable credits do not reduce it.
5. What is the shared responsibility payment for 2026?
Answer: Zero. IRC § 5000A(a) and (b) still state the requirement and the penalty, but § 5000A(c)(2)(B)(iii) sets the percentage of income at zero for taxable years beginning after 2018 and § 5000A(c)(3)(A) sets the applicable dollar amount at $0, so the monthly penalty amount is the greater of two zeros.
Change log
- Initial draft. Sets out the IRC § 36(f) first-time homebuyer credit recapture with its acceleration, gain cap and three exceptions, the § 965(h) instalment election, the § 4973 and § 4974 excise taxes, the § 72(t) additional tax, and the state of § 5000A after the shared responsibility payment was zeroed.