The U.S. Department of Housing and Urban Development (HUD) announces designations for QCTs and DDAs annually, by way of a Federal Register notice.  Low-income housing tax credit (LIHTC) properties located in these areas may increase their eligible basis by 30% for new construction and rehabilitation costs, allowing for a larger LIHTC allocation.

Under IRC Section 42(d)(5)(B)(iii)(I), for purposes of the LIHTC, the Secretary of HUD must designate DDAs, which are areas with high construction, land, and utility costs relative to area median gross income (AMGI). HUD designates DDAs for each of the 50 states, the District of Columbia, Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands. HUD makes the designations of DDAs based on modified current Fiscal Year (FY) Small Area Fair Market Rents (Small Area FMRs, SAFMRs), current FY nonmetropolitan county FMRs, current FY income limits, and Census population counts.

Similarly, under IRC Section 42(d)(5)(B)(ii)(I), the Secretary of HUD must designate QCTs, which are areas where either 50% or more of the households have an income less than 60% of the AMGI or have a poverty rate of at least 25%.  HUD designates QCTs based on new income and poverty data released in the American Community Survey (ACS).  HUD relies on the most recent three sets of ACS data to ensure that any sampling errors do not affect the QCT status of tracts.

Developments that are in the planning stages or are under construction can be adversely affected if an area subsequently loses its designation, whereby the project loses its QCT or DDA designation.  

To account for this, HUD allows the project’s designations to remain in effect in certain circumstances. 

Following is an excerpt from the Federal Register notice 90 FR 46904.  
The 2026 lists of QCTs and DDAs are effective:

(1) for allocations of credit after December 31, 2025; or

(2) for purposes of IRC Section 42(h)(4), if the bonds are issued and the building is placed in service after December 31, 2025.

If an area is not on a subsequent list of QCTs or DDAs, the 2026 lists are effective for the area if:

(1) the allocation of credit to an applicant is made no later than the end of the 730-day period after the applicant submits a complete application to the LIHTC-allocating agency, and the submission is made before the effective date of the subsequent lists; or

(2) for purposes of IRC Section 42(h)(4), if:

(a) the bonds are issued or the building is placed in service no later than the end of the 730-day period after the applicant submits a complete application to the bond-issuing agency, and 

(b) the submission is made before the effective date of the subsequent lists, provided that both the issuance of the bonds and the placement in service of the building occur after the application is submitted.

An application is deemed to be submitted on the date it is filed if the application is determined to be complete by the credit-allocating or bond-issuing agency. A “complete application” means that no more than de minimis clarification of the application is required for the agency to make a decision about the allocation of tax credits or issuance of bonds requested in the application.

In the case of a “multiphase project,” the DDA or QCT status of the site of the project that applies for all phases of the project is that which applied when the project received its first allocation of LIHTC. For purposes of IRC Section 42(h)(4), the DDA or QCT status of the site of the project that applies for all phases of the project is that which applied when the first of the following occurred: (a) the building(s) in the first phase was (were) placed in service, or (b) the bonds were issued.

For purposes of this notice, a “multiphase project” is defined as a set of buildings to be constructed or rehabilitated under the rules of the LIHTC and meeting the following criteria:

(1) the multiphase composition of the project ( i.e., total number of buildings and phases in the project, with a description of how many buildings are to be built in each phase and when each phase is to be completed, and any other information required by the agency) is made known by the applicant in the first application of credit for any building in the project, and that the applicant identifies the buildings in the project for which credit is (or will be) sought; 

(2) the aggregate amount of LIHTC applied for on behalf of, or that would eventually be allocated to, the buildings on the site exceeds the one-year limitation on credits per applicant, as defined in the QAP of the LIHTC-allocating agency, or the annual per-capita credit authority of the LIHTC allocating agency, and is the reason the applicant must request multiple allocations over 2 or more years; and

(3) all applications for LIHTC for buildings on the site are made in immediately consecutive years.

To preserve a QCT or DDA designation, the subsequent steps should be followed, depending on if the property is a 9% LIHTC development or has tax-exempt bond financing and 4% LIHTCs.

9% LIHTC Projects

• A complete application is submitted for 9% LIHTCs.
• If the project is in a designated QCT or DDA at the time the 9% application submission, it qualifies for the 130% boost.
• In order to preserve the boost if the designation is lost, the credits must be allocated no later than 730-days after the complete 9% application was submitted to the Agency.  This will be determined by the Tax Credit Analyst at the time of 8609.

4% LIHTC Projects

• A complete application is submitted to the Agency for bond financing.  
• A complete application includes all documents required for a mortgage commitment on the document checklist.
• Agency staff will review and assess whether the application has met the definition of a complete application.  
• If the application is complete and the project is located in a QCT or DDA designated area, it qualifies for the 130% boost.  The Agency shall issue a letter, stating such.     
• In order to preserve the boost if the designation is lost, the project must be placed in service or the bonds must be issued within 730-days after the date of complete application submission.