Common use of MCCs Clause in Contracts

MCCs. MCCs are authorized under the Tax Reform Act of 1986 and allow the borrower to receive a Federal tax credit for a percentage of their ▇▇▇▇- ▇▇▇▇ interest payment. They may be used by RHS guaranteed RH borrowers to improve their repayment ability for the loan. MCCs impact on the bor- rower’s tax liability. MCCs may be used with interest assisted loans when the amount of the tax credit is based on the amount of interest actually paid by the borrower. MCCs are subject to shared equity of a portion of any ‘‘gain’’ realized on the property when sold within 10 years after purchase. If the loan is also an RHS interest as- sisted loan, RHS shall receive priority for shared equity repayment. Income taxes are complex issues; RHS employ- ees and Lenders are not expected to be able to identify all issues impacting the borrower’s taxes. ▇▇▇▇▇▇▇ should encourage borrowers to consult with a tax advisor. (1) When the Lender is participating in an MCC program the amount of the tax credit is considered as an addi- tional resource available for repay- ment of the loan when the credit is taken on a monthly basis from with- holding. (2) The Lender will submit a copy of the MCC and a copy of the applicant’s Form IRS W–4, ‘‘Employee’s With- holding Allowance Certificate,’’ along with the other materials for the loan guarantee request. The amount of tax credit is limited to the applicant’s maximum tax liability. (i) The MCC must show the rate of credit allowed. (ii) The Form IRS W–4 must reflect that the borrower is taking the tax credit on a monthly basis. (iii) The Lender will certify that the borrower has completed and processed all of the necessary documents to ob- tain the tax credit in accordance with this section.