Construction, the 10% test, and getting to 8609 — California

The clocks you are now running against

This phase starts when the readiness submission is behind you and the calendar stops being about applications. Four dates govern it, and none of them are negotiable in the ordinary course.

Note the unit of measure on the third one. The placed-in-service deadline is stated in calendar years, not elapsed months, so a December allocation reads like "two more years" and is really closer to 24 months minus whatever the readiness period already consumed. A January allocation on the same nominal rule buys nearly a year more runway. Schedule against the actual close-of-year date, not a mental 24-month bar.

The durations behind those figures are the weakest data in the whole domain — the research behind this guide could not verify any of them from a primary or published source, and labels them folklore. They are load-bearing for the placed-in-service deadline. Use your own completed-deal history, not the rules of thumb.

The 10% test: the arithmetic is easy, the inclusions are not

The statute is explicit: the taxpayer's basis in the project as of the date one year after the allocation was made must exceed 10 percent of reasonably expected basis as of the close of the second calendar year following the allocation year (IRC Section 42(h)(1)(E)(ii)). CTCAC applies the same 12 months and adds two conditions of its own — documentation and land ownership (Section 10328(d)).

There is an unresolved conflict here and it should be named rather than papered over. 26 CFR Section 1.42-6(a)(2)(i)–(ii) still says the test must be met by the close of the calendar year for allocations made before July 1, and within six months for allocations made after June 30. That text predates the 2008 HERA amendment that moved the test to a uniform 12 months, and no IRS notice reconciling the two was located. The statute and CTCAC both say 12 months, so 12 months governs — but the regulation's consequence rules are still operative.

What counts toward the numerator is broader than eligible basis in one direction and narrower in another.

Verification is by taxpayer certification under penalty of perjury, or by an attorney or CPA certification, with agency review of supporting documentation (Section 1.42-6(c)(2)). The percentage is arithmetic. The signature is a professional liability product.

The bond track runs a parallel and partly different calendar

On a 4% deal the CDLAC clock does not stop at readiness. Unused allocation reverts to the Committee automatically at deadline expiry unless transferred or carried forward — no notice, no cure.

Two federal traps are set much earlier and detonate here. Pre-inducement predevelopment spending quietly shrinks the numerator of the 25%/50% test, and bond counsel usually finds it at closing. A stale TEFRA means a re-hearing at the worst possible moment.

Placing in service is a filing event, not a construction event

CTCAC issues Form 8609 / FTB 3521A only after three things exist: the placed-in-service package, the recorded regulatory agreement, and the compliance fee (Section 10322(i)). Certificates of occupancy alone get you nothing.

Then the federal step people forget. The owner must certify first-year information to the IRS following the close of the first taxable year of the credit period, and failure to certify means no credit is allowable for any taxable year ending before the certification is made (IRC Section 42(l)(1)). Failure to give CTCAC a copy of the completed 8609 showing that first-year filing is an enumerated negative-point item (Section 10325(c)(2)(K)).

Late filing of the placed-in-service package is itself an enumerated negative-point item (Section 10325(c)(2)(C)). It delays the 8609, which delays the investor's first-year credit, which delays the final equity installment. A clerical slip at the end of the phase costs real money at the closing table.

Lease-up decides the credit, permanently

Qualified basis and applicable fraction are recorded at the end of the first credit year (26 CFR Section 1.42-5(b)(1)(viii)). An unqualified household occupying a unit in year one permanently reduces the applicable fraction for all 15 years. This is a lease-up execution risk with a 15-year tail, and it is almost never modeled at feasibility stage.

Certification mechanics attach immediately.

Two moving targets to check against your lease-up window.

Retention is longer than most operators assume.

Missing a date, and the narrow ways out

Negative points are the mechanism that makes a single missed date a multi-year problem. They run up to 10 per project and/or per violation and are assessable against general partners, co-developers, management agents, consultants, guarantors and any Development Team member (Section 10325(c)(2)). CDLAC negative points are mirrored into CTCAC scoring and vice versa (Section 10325(c)(2)(T)). The penalty follows the sponsor into its next applications.

One more exposure spans the readiness-to-close window: pricing decay.

CTCAC re-runs feasibility and cost reasonableness at the readiness submission (Sections 10325(c)(7), 10328(c)), and a materially changed financing plan "may cause the project to be reconsidered by the Committee." A deal that repriced hard between application and close is not just a budget problem — it is re-underwriting risk.

What the sources do not settle

Four things are genuinely open, and a schedule built on this phase should treat them as inputs rather than knowns.

No published distribution of real California LIHTC construction and lease-up durations exists. The 14–24 month construction, 3–9 month stabilization and 6–18 month CofO-to-8609 ranges circulating among practitioners could not be verified from a primary or published source. Joining CTCAC reservation dates to placed-in-service dates in the published project lists would produce a defensible empirical distribution — nobody has assembled it.

CTCAC's own processing time from placed-in-service package submission to 8609 issuance is not published. That gap sits directly between your final CofO and the investor's final equity installment.

The IRS has not, as far as this research could determine, formally reconciled 26 CFR Section 1.42-6(a)(2) with the post-HERA 12-month rule in IRC Section 42(h)(1)(E)(ii). CTCAC applies 12 months. Implement the statute, surface the conflict, and keep the regulation's consequence rules.

And LIHTC-specific HOTMA guidance from the IRS did not exist as of CTCAC's August 4, 2026 memo, with the mandatory implementation date of January 1, 2027 approaching. Buildings leasing up across that date are operating on a state agency's implementation schedule without federal program guidance.