"Our 9% reservation letter says our credit has to 'close' within 18 months -- but CHFA's own Carryover paperwork also talks about an 'end of November' documentation deadline, and nobody has sent us the federal 10 percent test worksheet other states' housing agencies use. Which clock is actually running, and does the 10 percent test even apply here?"
One reservation, two stated deadlines -- and the Guideline does not fully reconcile them
CHFA's LIHTC Program Guideline (effective 11/1/2025) addresses the reservation-to-Carryover period in a single section, but states two different time limits without clearly defining how they interact. First: "Reservations must be closed no later than 18 months after the date of the reservation. CHFA may cancel a reservation if conditions have not been met and/or any assumptions in the application have changed materially and/or if the development will not meet its placed-in-service requirements." Second, describing the Carryover Allocation Agreement itself: "Awardees must provide all required documentation by the end of November," as part of the eligibility conditions for CHFA to issue that agreement. The Guideline text does not specify whether "closed" in the first sentence refers to the Carryover Allocation Agreement's execution, an initial financing closing, or both -- and whether the end-of-November documentation deadline sits inside, or runs independently of, the 18-month closing window is not spelled out either. This is a genuine ambiguity in CHFA's own public materials, not a gap this content is filling in with an assumption: a developer should confirm directly with CHFA, in writing, which date controls a specific reservation before treating either one as the operative deadline.
What is clear is the two-year runway that follows a Carryover Allocation Agreement's execution: "When a 9% LIHTC applicant is not able to complete a development and place it in service by the end of the year in which a tax credit award is made, a Carryover Allocation Agreement will be issued to allow the applicant two (2) years to meet these requirements." LIHTC allocations for developments that do place in service during the award year skip the Carryover step entirely -- CHFA issues the IRS Form 8609 directly.
The federal 10 percent test still applies, even though Connecticut's own materials never name it
A close reading of the full text of both the 2027 and 2028 QAP and the current LIHTC Program Guideline turns up no mention of a "10 percent test," an accountant-opinion exhibit, or a named worksheet certifying incurred project costs -- the specific kind of documentation some other states' housing finance agencies publish as a standalone Carryover checklist item. That silence in CHFA's public materials does not mean the requirement does not apply in Connecticut. The 10 percent incurred-cost test is a federal statutory condition of any Section 42 carryover allocation nationwide, imposed directly by 26 U.S.C. §42(h)(1)(E)(i)(II): to receive a valid carryover allocation, the taxpayer's basis in the project as of the close of the calendar year following the year of allocation must exceed 10 percent of the taxpayer's reasonably expected basis in the project as finally determined. Treasury Regulation §1.42-6 fills in the mechanics of how that test is documented and certified. Because this is a floor set by federal law rather than a state election, it binds every Connecticut Carryover Allocation Agreement regardless of whether CHFA's own checklist spells out a specific named exhibit for it.
The practical consequence is that a developer cannot rely on CHFA to hand over a template the way some other states do. Confirm directly, in writing, what specific documentation CHFA's underwriting or asset management staff want to see to evidence the federal 10 percent threshold for a given Carryover Allocation Agreement, and build that request into the same document package due "by the end of November" rather than assuming a separate, later process exists for it.
Carryover eligibility conditions and what can get a reservation cancelled
| Condition | What it requires |
|---|---|
| Form the ownership entity | The applicant's proposed ownership entity must actually be formed |
| Maintain financial feasibility | As determined by CHFA -- not fixed at the level shown in the original application |
| CHFA acceptance of material changes | Any material change from the original application must be affirmatively accepted by CHFA, not simply disclosed |
| Provide all requested information | As determined by CHFA, at CHFA's discretion |
| Remit the balance of the Tax Credit Servicing Fee | In accordance with the terms of the Reservation Letter |
All five conditions come from the same Guideline section describing eligibility "to be eligible for a Carryover Allocation."
Cancellation is a live risk on both ends of the process, not just a formality. Before Carryover, the Guideline states CHFA "may cancel a reservation if conditions have not been met and/or any assumptions in the application have changed materially and/or if the development will not meet its placed-in-service requirements." On the compliance side, the Guideline separately treats a specific kind of shortfall as automatic noncompliance rather than a negotiable issue: "Failure to provide supportive housing units or any other development feature for which points were awarded in a competitive round is an event of default and treated as noncompliance" -- a direct link back to whatever scoring commitments won the award in the first place (see Phase 8 of this guide for the scoring table those commitments come from).
Extensions run through a narrow test, not a routine request
The Guideline frames a voluntary return-and-reallocation of 9% credits as an exception for extraordinary circumstances, not a standard extension mechanism: "In instances where there are unforeseen timing delays prior to closing or during construction, a developer may request a voluntary allocation return and re-allocation of 9% LIHTCs. CHFA will consider requests for re-allocation that are for extraordinary and uncontrollable circumstances only." The applicant has to document both what it did to anticipate and prevent the delay, and what it did to react once the delay occurred. Two categories are pre-emptively excluded from consideration: "Delays during the legal due diligence and financial closing process are generally considered foreseeable," and CHFA "will not consider requests resulting from placed-in-service requirements imposed by an owner or equity provider that are more restrictive than those required in IRC §42" -- meaning a tighter deadline an investor negotiated for its own purposes does not create an extraordinary-circumstance excuse. A voluntary return that includes a material change from the originally awarded proposal may also require CHFA Board approval, not just staff sign-off.
Post-completion: cost certification, 8609 issuance, and the fee true-up
Once a development is complete, the owner must submit General Contractor's and Mortgagor's-LIHTC Cost Certifications documenting actual total project cost, and CHFA issues IRS Form(s) 8609 only "upon review and acceptance of the cost certifications." The certified numbers can move the final credit amount in either direction: for a 9% deal, "the amount of tax credits originally reserved will be reduced accordingly if the review of the certified costs shows the financing gap is less than the one originally projected"; for a 4% deal, the final amount "may be greater than the original estimated amount warranted by a final underwriting review." Every outstanding fee -- including the balance of the 8% Tax Credit Servicing Fee -- has to be paid before CHFA will issue the 8609 at all: "All outstanding fees must be received prior to the issuance of an 8609."
Compliance monitoring obligations start before placed-in-service, not after. The 2027 and 2028 QAP requires owners and management agents to attend CHFA's Tax Credit Compliance Monitoring Conference "at least six months prior to the first building's Placed-In-Service date," though that requirement can be waived if the same owner/agent attended within the prior three years. From there, the compliance regime is standard federal LIHTC mechanics administered by CHFA: annual certification, on-site inspection at least once every three years, tenant file review of at least 20% of low-income units at least once every three years, a 30-day correction period once CHFA issues a noncompliance notice, and an 8% upfront Tax Credit Servicing Fee assessed against the annual allocation.
Where this goes wrong
- Assuming the 18-month "closing" deadline and the "end of November" Carryover documentation deadline in CHFA's Guideline are the same date, or that one clearly supersedes the other. The Guideline's text does not reconcile the two -- confirm directly with CHFA in writing which deadline governs a specific reservation rather than assuming.
- Assuming Connecticut has no federal 10 percent test because CHFA's own QAP and Guideline never name one. The test is imposed directly by 26 U.S.C. §42(h)(1)(E)(i)(II) and Treas. Reg. §1.42-6 nationwide; CHFA's silence on a named worksheet is a gap in its public materials, not an exemption from federal law.
- Treating "maintain financial feasibility" as locked at the level shown in the original application. The Guideline states Carryover eligibility requires feasibility "as determined by CHFA" at the time of Carryover review, not merely as originally proposed.
- Assuming a voluntary return-and-reallocation request is available for ordinary closing delays. CHFA will only consider requests for "extraordinary and uncontrollable circumstances," and explicitly treats legal due diligence and financing-closing delays as generally foreseeable and therefore ineligible.
- Assuming an investor- or equity-provider-imposed placed-in-service deadline stricter than IRC §42 itself creates grounds for a CHFA extension. The Guideline states CHFA will not consider such requests.
- Failing to budget for the final cost-certification review to reduce a 9% credit award. If certified costs show a smaller financing gap than originally projected, CHFA reduces the credit amount accordingly -- the reservation amount is not guaranteed regardless of actual costs.
- Assuming the 8609 will issue once construction and cost certification are done, without checking outstanding fees. CHFA will not issue Form 8609 until all outstanding fees -- including the balance of the 8% servicing fee -- are paid in full.
- Skipping or delaying the Tax Credit Compliance Monitoring Conference. The QAP requires attendance at least six months before the first building's placed-in-service date, unless a waiver applies from having attended within the prior three years -- this is a pre-placed-in-service obligation, not a post-completion one.
- Treating a failure to deliver a scored development feature (e.g., supportive housing units, a resident services coordinator) as a minor deviation to fix later. The Guideline classifies failing to provide any feature for which competitive points were awarded as an automatic event of default and noncompliance.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies