PUBLIC LAW 100-647—NOV. 10,1988 102 STAT. 3649

"(ii) the product of—

"(I) the highest family income which (as of the
date the financing was provided) would have met
the requirement of subsection (f) with respect to
the residence, and

"(II) the percentage equal to the sum of 100
percent plus 5 percent for each full year during the
period beginning on such date and ending on the
date of the disposition.

For purposes of clause (ii)(D, highest family income shall be
determined without regard to subsection (f)(3)(A) and on the
basis of the number of members of the taxpayer's family as
of the date of the disposition.

"(C) MODIFIED ADJUSTED GROSS INCOME.—For purposes of
this paragraph, the term 'modified adjusted gross income'
means adjusted gross income—

"(i) increased by the amount of interest received or
accrued by the taxpayer during the taxable year which
is excluded from gross income under section 103, and
"(ii) decreased by the amount of gain (if any) included
in gross income of the taxpayer by reason of the dis-
position to which this subsection applies.
"(6) LIMITATION ON RECAPTURE AMOUNT BASED ON GAIN
REALIZED.—

"(A) IN GENERAL.—In no event shall the recapture
amount of the taxpayer with respect to any indebtedness
exceed 50 percent of the gain (if any) on the disposition of
the taxpayer's interest in the residence. For purposes of the
preceding sentence, gain shall be taken into account
whether or not recognized, and the ac^justed basis of the
taxpayer's interest in the residence shall be determined
without regard to sections 1033(b) and 1034(e) for purposes
of determining gain.

"(B) DISPOSITIONS OTHER THAN SALES, EXCHANGES, AND
INVOLUNTARY CONVERSIONS.—In the case of a disposition
other than a sale, exchange, or involuntary conversion, gain
shall be determined as if the interest had been sold for its
fair market value.

"(C) INVOLUNTARY CONVERSIONS RESULTING FROM CASUAL-
TIES.—In the case of property which (as a result of its
destruction in whole or in part by fire, storm, or other
casualty) is compulsorily or involuntarily converted, para-
graph (1) shall not apply to such conversion if the taxpayer
purchases (during the period specified in section
1033(aX2XB)) property for use as his principal residence on
the site of the converted property. For purposes of subpara-
graph (A), the adjusted basis of the taxpayer in the resi-
dence shall not be adjusted for any gain or loss on a
conversion to which this subparagraph applies.
"(7) ISSUER TO INFORM MORTGAGOR OF FEDERALLY-SUBSIDIZED
AMOUNT AND FAMILY INCOME LIMITS.—The issuer of the issue
which provided the federally-subsidized indebtedness to the
mortgagor shall—

"(A) at the time of settlement, provide a written state-
ment informing the mortgagor of the potential recapture
under this subsection, and