RAD with 4% credits and tax-exempt bonds

A RAD building placed in service in a tax year beginning after December 31, 2025 can qualify for 4% low-income housing tax credits with only 25% of its aggregate basis financed by volume-cap private activity bonds, down from 50%, provided at least one bond issue dated after 2025 finances at least 5% of that basis. The change is section 70422 of Public Law 119-21, enacted July 4, 2025. For a RAD rehab it roughly halves the bond allocation the deal must win.

The same section made two other changes that touch RAD: a permanent 12% increase in 9% allocations from 2026, and, already in law since 2021, a 4% floor on the credit rate. This guide sets out the rules, the 2027 QCT and DDA lists, eligible basis on a RAD rehab, and a worked sources and uses.

Why RAD deals use 4% credits

4% credits are not competitive in the way 9% credits are: any building that meets the bond test receives them outside the state ceiling. That makes them the standard tool for deep rehab of an existing public housing property. In the RAD Resource Desk’s sources and uses file (through August 5, 2024):

Slice	Units using 4% credits	Units using 9% credits
All 1,713 transactions (232,066 units)	39.5%	11.3%
2020 onward, excluding NYC (530 deals)	49.4%	10.7%
Rehab over $100,000 per unit, 2020 onward	90.2%	n/a

Some deals pair both, so shares can overlap. In HUD’s deal-level export, as of October 24, 2026, 630 of 1,955 closed conversions used 4% credits, with a median reported hard cost of about $135,723 per unit and median reported tax credit amount of about $95,678 per unit.

The bond test after Public Law 119-21

Section 70422 added a new IRC section 42(h)(4)(B). A building gets 4% credits outside the ceiling if either:

1. The 50% path: 50% or more of the aggregate basis of the building and the land it sits on is financed by tax-exempt bonds subject to volume cap; or
2. The 25% path: 25% or more of that aggregate basis is so financed, and at least one issue of those bonds has an issue date after December 31, 2025 and finances at least 5% of the aggregate basis.

The 25% path applies to buildings placed in service in taxable years beginning after December 31, 2025. Where rehabilitation is treated as a separate new building, both the existing building and the rehab building are deemed placed in service on the rehab’s placed-in-service date, so a RAD acquisition-rehab can use the 25% path when the rehab is placed in service in that window.

Three practical effects for PHAs:

• Less volume cap per deal. States with oversubscribed bond cap can fund more RAD conversions.
• Bond date matters. Bonds issued before 2026 can count toward the 25%, but at least one post-2025 issue has to carry 5% of basis.
• Placed-in-service timing matters. A deal financed only with pre-2026 bonds does not meet the 25% path on its own; it needs a post-2025 issue covering at least 5% of basis, and a building placed in service before the new rule applies still needs 50%. Confirm with tax counsel.

The 4% floor and the 9% increase

IRC section 42(b)(3) sets the applicable percentage at no less than 4% for buildings that are not 9% buildings and are placed in service after December 31, 2020. Before that, the rate floated below 4% and cost bond deals equity.

For 9% deals, section 70422 applies a 1.12 multiplier to state housing credit ceilings for calendar years beginning after December 31, 2025, permanently. 2026 is the first year. 9% RAD deals still compete in their state’s qualified allocation plan, but each round now has 12% more credit than the base formula.

QCT and DDA boosts for 2027

A building in a qualified census tract or difficult development area gets a 30% basis boost (IRC 42(d)(5)(B)). For a new building the boost applies to eligible basis; for an existing building it applies only to the rehabilitation expenditures, not to acquisition basis. Most RAD rehabs are existing buildings, so the boost is worth less than the headline 30%.

HUD published the 2027 lists at 91 FR 63573 on October 6, 2026 (FR Doc. 2026-20390). They apply to credit allocations made after December 31, 2026 and to 42(h)(4) bond deals whose application is submitted while the lists are in effect, subject to the 730-day rule. The 2026 lists are at 90 FR 46904 (September 30, 2025). The notice’s 730-day rule governs when a bond deal that applied under the 2026 lists can still use them.

Eligible basis on a RAD rehab

A RAD tax credit deal usually has two pieces of basis:

• Acquisition basis: the price paid for the existing buildings (not land). On a RAD deal, that price is often paid partly in cash and partly with a seller note to the PHA.
• Rehabilitation basis: hard costs, depreciable soft costs and the developer fee attributable to the rehab.

Costs financed with a federal grant are excluded from eligible basis (IRC 42(d)(5)(A)). That is one reason PHA Capital Fund and similar money usually enters a tax credit deal as a loan rather than a grant; tax counsel decides the form.

The developer fee has its own RAD limit (RAD notice 1.14): the undeferred fee may not exceed the greater of 15% of total development cost less acquisition payments to the PHA, the fee and reserves, or the lesser of $1,000,000 and 15% of total development cost. The allocating agency’s limit also applies. A 25% increase is available if at least 25% of units carry a CoC homeless or PSH-exit preference.

Worked sources and uses (illustrative)

A 100-unit RAD acquisition and rehab in a 2027 QCT. Every figure below is an assumption for illustration, not market pricing or a quote.

Uses

Use	Amount
Acquisition from the PHA (land $1.5 million, buildings $8.5 million)	$10,000,000
Hard costs ($160,000 per unit)	$16,000,000
Soft costs (of which $1.0 million not in basis)	$4,000,000
Developer fee	$3,000,000
Reserves	$1,000,000
Total development cost	$34,000,000

Bond test. Aggregate basis of building and land is $32.0 million (total cost less reserves and non-basis soft costs). The 25% path needs $8.0 million of volume-cap bonds, with at least $1.6 million (5%) from a post-2025 issue. A single $8.5 million issue in 2027 satisfies both. The old 50% test would have needed $16.0 million.

Credits. Acquisition basis $8.5 million × 4% = $340,000 a year. Rehab basis $22.0 million × 130% QCT boost × 4% = $1,144,000 a year. Total $1,484,000 a year for ten years, assuming every unit qualifies. At an assumed $0.85 per credit, equity is about $12.61 million. Without the QCT boost it would be about $10.37 million.

Developer fee check. 15% × ($34.0 million less $10.0 million acquisition, $3.0 million fee and $1.0 million reserves) = $3.0 million, above the $1.0 million alternative, so up to $3.0 million may be undeferred. The deal defers $1.2 million.

Permanent sources

Source	Amount
Tax credit equity	$12,610,000
First mortgage (sized to RAD rents at 1.11)	$6,000,000
PHA seller note	$9,000,000
State and local soft funds	$3,690,000
PHA funds, as a loan	$1,500,000
Deferred developer fee	$1,200,000
Total	$34,000,000

During construction, the $8.5 million of bonds and equity installments fund the work; at conversion the bonds are paid down to, or replaced by, the permanent loan. The first mortgage can be FHA 221(d)(4), 223(f), an agency loan or bond-funded debt. Run your own numbers in the sources and uses builder and size the first mortgage with the RAD debt sizer.

Ownership and control with an investor

A tax credit partnership controlled by a for-profit general partner is allowed under RAD only if the PHA or a nonprofit preserves an interest. The RAD notice (1.4.A.11) lists ways to meet the public or nonprofit ownership or control requirement, including ground lessor status or 51% of the GP interest. The year-15 exit is covered in refinancing a RAD property, and the full menu of executions in the RAD financing guide.

Pricing a credit and bond structure

To test a 4% and bond structure against a specific project’s RAD rents, send the scope, the rents and the bond status to Janover Capital LLC, a commercial mortgage advisor, not a lender. Get a financing quote for the debt side of the stack.

Tax rules are applied by counsel and the allocating agency, and HUD’s notices control the RAD side; nothing here is legal or tax advice.

Sources

• Public Law 119-21, section 70422, July 4, 2025, 139 Stat. 234-235: govinfo.
• 26 U.S.C. 42, sections (b)(3), (d)(5) and (h)(4): govinfo, U.S. Code 2023 edition.
• 91 FR 63573, October 6, 2026 (FR Doc. 2026-20390): 2027 QCTs and DDAs.
• RAD Resource Desk, RAD Public Housing Sources and Uses by Unit, data through August 5, 2024; leverage and sources page, read October 30, 2026; Component 1 data export, October 24, 2026.
• HUD, RAD Notice Revision 4 as amended by Supplementals 4B and 4C: sections 1.4.A.11 (ownership and control) and 1.14 (developer fee).