"We just closed our Carryover Allocation — what does DHCD actually require while we build, and exactly what has to be in hand before it will issue our 8609s?"
Three underwriting checkpoints, and a bifurcated process for 4% bond deals
DHCD's QAP is explicit that underwriting happens three times: before a reservation is awarded, at Carryover Allocation, and again before IRS Form(s) 8609 are issued. A Reservation Letter is only "a conditional commitment of LIHTC" that "does not meet the definition of a binding allocation as stated in IRC Section 42" — the binding allocation is the Carryover Allocation that follows once a Sponsor/Developer meets the Reservation Letter's requirements. For 9% Tax Credits, that whole sequence runs through DHCD's competitive Consolidated RFP process and its Online Application System.
4% Tax Credit/bond deals run a genuinely different administrative path. Applications for 4% Tax Credits without competitive gap financing are accepted on a rolling basis and go directly to the DC Housing Finance Agency (DCHFA) through its own online portal, not DHCD's Consolidated RFP. After the Project is placed in service, the owner submits its Form(s) 8609 request to DCHFA; DCHFA evaluates that request and then transmits it to DHCD for final review and issuance — DHCD, not DCHFA, remains the agency that actually issues the 8609. DCHFA also runs its own Readiness Review process for tax-exempt bond deals in two windows a year, January and July, "depending on the availability of resources" — missing one of those windows is a scheduling risk specific to the bond/4% path that a 9%-only deal doesn't face.
The 10% Test and the federal two-year placed-in-service deadline
The QAP states the Carryover-to-PIS mechanics in a single operative paragraph: "The Sponsor/Developer must incur more than 10% of the reasonably anticipated basis within 12 months of the tax credit Carryover Allocation date (the ‘10% Test’) and then place the Project in service no later than the end of the second year following the year of the Carryover Allocation. Failure to meet these requirements will result in the loss of the LIHTC for the Project." To demonstrate the 10% Test, DHCD requires both an owner's certification itemizing Project expenditures and a CPA's opinion documenting that the Project met the test within that 12-month window — a signed accountant's opinion, not a self-certification alone, is required at this early a stage, well before the cost certification DHCD requires at 8609 issuance.
| Milestone | Deadline | What DHCD requires to prove it |
|---|---|---|
| Reservation Letter | Conditional commitment only — not a binding allocation | Meets Reservation Letter conditions |
| Carryover Allocation | Binding allocation once Reservation conditions are met | Meets IRC §42 qualification requirements |
| 10% Test | More than 10% of reasonably anticipated basis incurred within 12 months of the Carryover Allocation date | Owner's itemized expenditure certification + CPA opinion |
| Placed in service | End of the second year following the year of the Carryover Allocation date (IRC §42(h)(1)(E)) | Certificate of Occupancy or DHCD-acceptable equivalent |
| Form(s) 8609 issuance | After DHCD's final feasibility evaluation and full document review | Full pre-8609 checklist (see below) |
DHCD's Reservation Letters also identify a separate date-certain by which a Sponsor/Developer must certify either that the Project has been placed in service or that more than 10% of anticipated basis has been incurred — missing both can result in the Reservation being cancelled and the credits redistributed.
Before Form(s) 8609 can be issued: DHCD's document checklist and the CPA cost certification
When buildings are placed in service, DHCD performs a final evaluation "to determine the LIHTC amount needed to make the development feasible" — consistent with IRC §42(m)(2) and §42(h)(3)(c), only the amount needed for financial feasibility and economic viability is allocated, and any LIHTC previously allocated above that final amount is returned to DHCD. Deferred developer fee is treated as a committed source of funds at closing, and the QAP specifies it "will only be reduced prior to DHCD's final housing credit determination in accordance with DHCD's standard right-sizing policies" — not adjusted after the fact for convenience.
| Document | Detail |
|---|---|
| Revised Form 202 (development budget/operating pro forma) | Adjusted to the final sources and uses shown on the CPA cost certification, in both Excel and signed PDF |
| Accountant's/Owner's cost certification | Includes the "25% Test" for projects using tax-exempt bonds/4% Tax Credits |
| Draft IRS Form 8609 | One per building in the Project |
| Required DC licenses | E.g., basic business license, for both owner and management agent |
| Certificate of Occupancy | D.C. Department of Buildings-issued, or DHCD-acceptable equivalent, per building |
| Recorded Land Use Restrictive Covenants | The Indenture of Restrictive Covenants (Extended Use Agreement) |
| Project market study | Copy required |
| Executed partnership/operating agreement | Including all amendments, attachments, and exhibits since closing |
| Development team/management summary | Any changes since Application |
| Evidence of LIHTC fees paid at closing | Documentation required |
| Federal applicable percentage rate lock agreement | Copy required |
The QAP names a "25% Test" for the bond/4% cost certification but does not define what that test computes anywhere else in the document — this research could not independently confirm its mechanics from the QAP text and recommends confirming directly with DHCD or DCHFA before assuming it mirrors a specific federal test by that name.
For Projects combining HUD development or operating assistance with tax credits, DHCD or DCHFA also runs a subsidy layering review — once after underwriting is complete, and again when Form(s) 8609 are issued — to confirm the Ownership Entity isn't receiving excessive government subsidy. That second review sits directly inside the pre-8609 window, alongside the document checklist above.
The Underwriting Guide's numeric caps are, in DHCD's own words, still "forthcoming"
The QAP repeatedly points to a separate Underwriting Guide for the actual dollar limits on reserves, cost limitations, development/consultant fees, general contractor fees, and debt service requirements. But the QAP's own Definitions section defines that document itself: "Underwriting Guide: A forthcoming supplemental document pertaining to all funding applications submitted to DHCD for affordable housing financing..." As of this December 2025 QAP, DHCD's own primary text does not itself publish general contractor fee caps, builder overhead/profit percentages, or contingency-percentage limits the way some other states' QAPs do — a real, sourced gap rather than an oversight in this research. A developer budgeting a DC deal against a specific GC fee percentage or contingency figure should get that figure in writing from DHCD directly rather than assuming a number from another jurisdiction's QAP applies.
Construction-period inspections, prevailing wage, and hiring requirements the QAP does specify
The one construction-stage physical inspection the QAP names specifically is tied to accessibility, not general construction quality or cost draws: "All physical inspections will be conducted on site at the framing/reinforcement and final stage for accessibility compliance," governed by Section 504 of the Rehabilitation Act, the ADA, and the Fair Housing Amendments Act. This research found no separate description in the QAP text of a quarterly or monthly general construction-progress inspection regime, a named third-party inspector, or an associated fee schedule of the kind some other states' QAPs spell out. That level of detail, if it exists for DC, would sit inside the "DHCD LIHTC Compliance and Monitoring Reference Guide" that the QAP incorporates by reference — but the version of that guide found publicly posted on DHCD's project-monitoring page is dated 2019, six years before this QAP's December 2025 publication, so this research could not confirm whether its construction-inspection provisions are current. Confirm the actual construction-monitoring cadence directly with DHCD's Portfolio and Asset Management division before relying on any specific number.
Prevailing wage is not automatic on a DC LIHTC deal. The QAP is explicit that Davis-Bacon Act and Davis-Bacon Related Acts rates apply only "if a LIHTC Project is assisted with other federal or local funding sources or subsidies triggering" them — naming HOME, CDBG, HTF, STORM, HUD 542(c) Risk Share, and/or an Annual Contributions Contract (ACC) as federal triggers, and the Housing Production Trust Fund (HPTF) or Local Rent Supplement Program (LRSP) as local triggers. Section 3 of the Housing and Urban Development Act of 1968 and the Build America, Buy America (BABA) Act attach on the same funding-source-triggered basis. Separately and without a funding trigger, every LIHTC recipient must register with DOES's Apprenticeship Program, comply with the District's First Source Program (51% of new hires from construction/development financing must be DC residents), and complete DHCD's EEO and DSLBD compliance-checklist steps.
Where this goes wrong
- Assuming DC's placed-in-service deadline is fixed to a calendar date by competitive round, the way some other states' QAPs set it. DHCD ties the deadline to each deal's own Carryover Allocation date — the end of the second year following the year of that Carryover Allocation — not to a fixed date shared across an entire funding round.
- Missing the 10% Test's 12-month clock or treating it as a self-certification. DHCD requires both an owner's itemized-expenditure certification and a CPA's opinion within 12 months of the Carryover Allocation date; failing the test costs the Project its LIHTC.
- Underwriting a DC deal against assumed general contractor fee caps, developer fee limits, or contingency percentages copied from another state's QAP. DHCD's own Definitions section describes its Underwriting Guide — the document meant to carry those numbers — as "a forthcoming supplemental document," not yet published as of this December 2025 QAP.
- Assuming the QAP's "25% Test" for bond/4% cost certifications is self-explanatory. The QAP names it without defining its computation anywhere else in the document — confirm the mechanics with DHCD or DCHFA rather than guessing.
- Treating DCHFA and DHCD as interchangeable for a 4% bond deal. DCHFA runs its own online application portal, its own twice-yearly Readiness Review (January and July), and evaluates the Form 8609 request first — DHCD then does the final review and is the agency that actually issues the 8609.
- Believing a Reservation Letter is a binding tax credit allocation. The QAP states plainly that a Reservation "does not meet the definition of a binding allocation as stated in IRC Section 42" — that status attaches only at Carryover Allocation.
- Assuming a specific quarterly or monthly construction-progress inspection cadence applies in DC. The QAP text names only accessibility inspections at framing/reinforcement and final stage; a broader inspection regime, if any, lives in a Compliance and Monitoring Reference Guide whose publicly posted version predates this QAP by roughly six years.
- Assuming deferred developer fee can be adjusted after closing for convenience. The QAP treats it as a committed closing-date source, reducible only under DHCD's standard right-sizing policies before the final credit determination.
- Assuming Davis-Bacon/prevailing wage automatically applies to every DC LIHTC deal. It only attaches when the Project is also assisted by specific other federal or local funding (HOME, CDBG, HTF, STORM, HUD 542(c), ACC, HPTF, or LRSP) — a LIHTC-only deal with no such funding does not automatically trigger it under this QAP's own text.
- Skipping DOES Apprenticeship Program registration or the First Source/EEO/DSLBD compliance-checklist steps because a deal has no HUD or local subsidy triggering Davis-Bacon. The QAP requires these of all LIHTC recipients, independent of the prevailing-wage triggers.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies