"We have our 2026 Reservation Notice — exactly how many months do we have to own the Site and hit the 10 percent test before THDA can recapture the credit, and what happens if we're a day late responding to one of THDA's Evaluation Notices?"
Two separate recapture triggers, both keyed to project-specific dates rather than a QAP calendar
The 2026 QAP recaptures credit at two distinct points, under two separately numbered provisions, and neither prints a universal countdown. Section 19.I governs the Reservation Notice stage: THDA "will cancel a Reservation Notice for failure to fully satisfy conditions imposed in connection with the Reservation Notice...by the deadlines specified in the Reservation Notice," and those deadlines "are the dates upon which Housing Credit is deemed recaptured...unless the conditions...have been met on or before such deadline or unless an extension has been granted." Section 20.F governs the Carryover Allocation Agreement stage on the same logic — cancellation for missed conditions "by the deadlines specified by THDA," with the Carryover Allocation Agreement's own deadlines controlling recapture. In both cases, credit can also be voluntarily returned by the Owner rather than recaptured for cause.
Because both mechanisms point back to a document THDA issues on a per-project basis — the Reservation Notice, then the Carryover Allocation Agreement — the actual number of days or months an owner has to act is not a single figure printed anywhere in the QAP's own text. That is a genuine gap worth flagging rather than guessing at: unlike some other states' plans, which state a fixed period (for example, a flat number of months from reservation to carryover), Tennessee's 2026 QAP text does not restate that interval.
Qualifying for carryover: site ownership plus the 10 percent test, on a date the QAP does not itself number
Section 20.A sets the substantive qualification test in a single sentence: an owner whose development "will not place in service by December 31 of the year in which the Reservation Notice was issued" may qualify for a Carryover Allocation, but only if "the ownership entity identified in the Initial Application must have ownership of the Site...and must have incurred costs of at least 10 percent of the reasonably expected basis in the development by the date specified in the Carryover Allocation Agreement." The QAP does not separately state how many months after the Reservation Notice that date must fall, or how many months after the Carryover Allocation Agreement is signed the 10 percent test itself must be met — both are left to "the date specified" project by project.
Federal law fills that gap even where Tennessee's own QAP text does not restate it: IRC § 42(h)(1)(E)–(F) requires a Carryover Allocation Document to be executed no later than the close of the calendar year in which the allocation is made, and requires more than 10 percent of the taxpayer's reasonably expected basis to be incurred within one year of the date that document is entered into. Tennessee's Carryover Allocation Agreement, its evidentiary checklist, and its Evaluation Notice cadence sit on top of that federal floor — they do not appear to relax or extend it, but the 2026 QAP's own text does not independently restate the one-year, end-of-calendar-year figures either. Confirm the exact numeric deadline against the Reservation Notice and Carryover Allocation Agreement actually issued for a given development rather than assuming a fixed period from this QAP alone.
The carryover submission package, and an Evaluation Notice clock that only gets shorter
| Item |
|---|
| Executed Statement of Application and Certification |
| Firm commitment letter(s) for construction financing, executed by all parties |
| Syndication transaction documentation, including a firm commitment letter from the Housing Credit purchaser |
| Recent utility allowance documentation supporting the unit sizes/types proposed |
| A 30-year pro forma for the proposed development |
| IRS documentation of the Owner's Employer Identification Number |
| The Owner's Affirmatively Furthering Fair Housing Marketing Plan |
| Executed current partnership or operating agreement and organizational chart |
| Recorded warranty deed or executed 50-year ground lease, if available |
| A copy of the PILOT agreement, if one is available |
If closing has already occurred, equity syndication and construction-financing closing documentation must also be submitted through THOMAS; the Cost Certification for the 10 Percent Test itself is separately due "no later than the date specified in the Carryover Allocation Agreement."
| Evaluation Notice | Deadline to respond |
|---|---|
| First | 5 business days |
| Second | 2 business days |
| Final | 1 business day |
The identical 5-then-2-then-1-business-day structure governs the later Final Application / placed-in-service review under Section 9 (Table 9–1), where a missed Final deadline is the date on which Housing Credit tied to the Carryover Allocation Agreement or a 42(m) Letter may be recaptured. THDA "will not issue a Carryover Allocation Agreement" — or, at the later stage, IRS Form(s) 8609 — if the conditions in these notices are not fully satisfied.
What happens to recaptured or returned credit, and exactly when it matters which side of October 1 you're on
Section 20.F.3 fixes one precise, non-project-specific date for the entire 2026 cycle: Housing Credit recaptured by cancellation of a Carryover Allocation Agreement, or voluntarily returned by the Owner, "returned before October 1, 2026 will be reserved to other qualified 2026 Initial Applications," while anything "returned on or after October 1, 2026 will be available in 2027" instead. The same before/after logic applies to credit recaptured at the earlier Reservation Notice stage under Section 19.I, which is made available "to the fullest extent practical to other qualified Initial Applications" under the QAP then in force. An owner deciding whether to walk away from a struggling deal in September versus October 2026 is not just deciding for themselves — that date decides whether the credit can still help another 2026 applicant waiting behind them, or disappears into next year's pool instead.
The Housing Credit Exchange — a narrow, 2024-recipients-only safety valve, not a general extension tool
Section 21 creates a Housing Credit Exchange mechanism, and it is easy to mistake for a general hardship extension — it is not one. It is available only to 2024 Competitive Housing Credit allocation recipients, capped in aggregate at the amount of 2024 Housing Credit actually returned, and required written notice to THDA "no later than December 3, 2025" to even be considered; a development that already used one exchange allocation cannot get a second. Developments that use it are scored and held to 2024 QAP thresholds rather than the 2026 QAP (unless the 2026 QAP is more favorable on a given point), permanently waive any ability to request the Qualified Contract Process, and take on a fixed December 31, 2028 Placed-in-Service deadline — missing that deadline, or requesting an extension of it, is itself defined as a Major Significant Adverse Event under Section 5.A. None of this is available to a development that received its Reservation Notice in the 2026 round; a 2026 awardee facing a timeline problem has to work through Sections 19 and 20's ordinary cure, extension, and recapture mechanics instead.
Where the competitive process hands off to the noncompetitive bond track — and what comes after carryover
Section 20's Carryover Allocation Process sits entirely under "Part II: Competitive Allocations Only." A development financed with tax-exempt bonds through Multifamily Tax-Exempt Bond Authority (MTBA) does not receive a Carryover Allocation Agreement at all — Section 22 instead has THDA issue a Firm or Conditional 42(m) Letter for Noncompetitive Housing Credit, which carries its own certification requirement that at least 50 percent of the original MTBA bond principal remains outstanding as of the placed-in-service date, verified by bond counsel or a Tennessee-licensed CPA. Treating a bond deal's 42(m) Letter as interchangeable with a competitive deal's Carryover Allocation Agreement will misstate which documents, deadlines, and recapture triggers actually apply.
Once the 10 percent test and carryover conditions are behind a competitive development, the next fixed clock is the Final Application at placed-in-service (Section 9), which runs the same 5-then-2-then-1-business-day Evaluation Notice cadence toward issuance of IRS Form(s) 8609. From there, the Owner must return executed 8609s to THDA "within 30 calendar days after its first-year tax returns are due to the IRS," and must get THDA a copy of the promissory note and recorded deed of trust for permanent financing "within sixty (60) days of the date of recording," with failure to do so itself deemed an event of noncompliance.
Where this goes wrong
- Quoting a fixed 'X months from reservation to carryover' or 'X months to the 10 percent test' figure as if it were printed in Tennessee's QAP. Section 20.A ties both to "the date specified in the Carryover Allocation Agreement," set by THDA per project; the QAP's own text does not restate a universal numeric deadline the way some other states' plans do. The federal backstop (IRC § 42(h)(1)(E)–(F): one year from Carryover Allocation Document execution, itself due by year-end of the allocation year) is the closest thing to a default, and even that should be confirmed against the specific documents issued for a given award.
- Treating the Evaluation Notice response windows as calendar days, or as a flat cure period. They are business days, and they shrink with each successive notice — 5, then 2, then 1 — at both the Carryover stage (Table 20–1) and the later Final Application/placed-in-service stage (Table 9–1).
- Conflating Reservation Notice cancellation with Carryover Allocation Agreement cancellation. These are two separately numbered recapture provisions (Section 19.I and Section 20.F) tied to two different documents' own project-specific deadlines, not one unified 'award recapture' clock.
- Missing the October 1 cutoff on recaptured or returned 2026 credit. Return or lose an allocation before October 1, 2026 and it can still fund another 2026 applicant; on or after October 1, 2026, it rolls into the 2027 pool instead (Section 20.F.3).
- Assuming the Housing Credit Exchange (Section 21) is available to a struggling 2026 awardee. It is limited to 2024 Competitive Housing Credit recipients who gave THDA written notice by December 3, 2025 — a hard, already-passed deadline for anyone not already in that 2024 cohort.
- Assuming a noncompetitive, MTBA/bond-financed development goes through the same Carryover Allocation Agreement as a competitive award. Section 20 applies only to competitive allocations; bond deals instead receive a Firm or Conditional 42(m) Letter under Section 22, with its own 50-percent-bonds-outstanding certification requirement.
- Forgetting that a PILOT agreement, if one exists, has to be filed with the 10 Percent Test cost certification. Section 20.B.4.b requires a copy of the PILOT agreement when one is available — the property-tax mechanism from the capital-stack phase of this deal resurfaces as a literal line item in the carryover package.
- Treating a Development Team's missed carryover or placed-in-service deadline as a one-time, isolated event. Section 5.B.5 lists failing to obtain a Carryover Allocation Agreement after an accepted Reservation Notice, or failing to meet federal allocation timeframes after carryover, as grounds that can make an individual's next Tennessee Initial Application ineligible — the consequence follows the person, not just the project.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies