RAD sources and uses with 4% credits
Does a RAD conversion with 4% tax credits and tax-exempt bonds close its gap? Enter costs and sources; you get the credit equity, the gap, the deferred developer fee needed to fill it, and whether the bond amount clears the 25% or 50% test.
Worked example: 100 units at a $136,000 hard cost per unit (the median on 629 closed RAD deals with 4% credits) raise $7,174,000 of credit equity. The gap is $1,926,000, 77% of the developer fee if deferred, and $8,500,000 of bonds is 39.4% of aggregate basis, which clears the 25% test.
Total development cost $22,600,000
Gap $1,926,000- Eligible basis
- $21,100,000
- Qualified basis
- $21,100,000
- Annual credit (4%)
- $844,000
- Ten-year credits
- $8,440,000
- Deferred developer fee to close
- $1,926,000 (77%)
- Gap after deferring the whole fee
- $0
Bond test: aggregate basis about $21,600,000; the 25% test needs $5,400,000 of bonds, with at least $1,080,000 from an issue dated after 2025. $8,500,000 is 39.4%: passes.
| Uses | Amount |
|---|---|
| Acquisition: buildings (seller price) | $2,000,000 |
| Acquisition: land | $500,000 |
| Hard costs | $13,600,000 |
| Soft costs in eligible basis | $3,000,000 |
| Soft costs outside basis (syndication, perm loan fees) | $400,000 |
| Reserves | $600,000 |
| Developer fee | $2,500,000 |
| Total uses | $22,600,000 |
| Sources | Amount |
|---|---|
| First mortgage | $8,500,000 |
| 4% LIHTC equity | $7,174,000 |
| PHA seller note | $2,500,000 |
| Soft funds (HOME, local, PHA) | $2,500,000 |
| Total before deferred fee | $20,674,000 |
| Deferred developer fee | $1,926,000 |
How this works
- Eligible basis = building acquisition + hard costs + soft costs in basis + developer fee. Land, reserves and costs outside basis are excluded. With the QCT/DDA box ticked, the rehab part (hard, soft in basis, fee) is multiplied by 130%; acquisition basis is not (26 U.S.C. 42(d)(5)(B)).
- Qualified basis = eligible basis x the applicable fraction. Annual credit = qualified basis x 4%, the statutory floor for non-9% buildings placed in service after 2020 (42(b)(3)). Ten-year credits = annual x 10 (42(f)(1)).
- Equity = ten-year credits x your price per dollar of credit. The $0.85 default is an illustrative input, not a market quote.
- Gap = total uses minus first mortgage, equity, seller note and soft funds. The tool defers developer fee up to the full fee to close it and reports what is left.
- Bond test (42(h)(4)(B) as amended by P.L. 119-21, section 70422): bonds must finance 50% of the aggregate basis of building and land, or 25% when an issue dated after December 31, 2025 finances at least 5% of that basis and the building is placed in service in a taxable year beginning after December 31, 2025. The tool estimates aggregate basis as land + building acquisition + hard + soft in basis + fee; bond counsel computes the real figure.
The hard cost default ($136,000 per unit) is the median hard cost per unit on 629 closed RAD conversions that used 4% credits, from HUD's RAD Resource Desk data downloaded October 24, 2026. Every other dollar amount is an example: replace it. For the mortgage line, size the loan in the RAD debt sizer.
What it leaves out: the credit pricing adjusters investors apply, the monthly applicable percentage when it would exceed 4%, state allocation rules and caps on developer fee, basis reductions for federal grants (42(d)(5)(A)), the 10-year holding rule for acquisition credits, and the timing of equity pay-ins and bond paydown.
Questions people ask
Is the 4% credit rate fixed at 4%?
It has a 4% floor. Under 26 U.S.C. 42(b)(3), for any building placed in service after December 31, 2020 that is not a 9% building, the applicable percentage is not less than 4%. The floor is permanent law. This tool uses 4%.
What is the 25% bond test?
To get 4% credits without a state allocation, tax-exempt private activity bonds must finance at least 50% of the aggregate basis of the building and its land. Public Law 119-21, section 70422 (July 4, 2025), lowers that to 25% when at least one bond issue dated after December 31, 2025 finances at least 5% of that basis, for buildings placed in service in taxable years beginning after December 31, 2025.
Does the 130% QCT or DDA boost apply to a RAD rehab?
In a HUD-designated qualified census tract or difficult development area, 42(d)(5)(B) raises eligible basis to 130%: for an existing building, it applies to the rehabilitation expenditures, not the acquisition basis. A state agency's own boost designation does not apply to bond-financed buildings.
Where does the PHA's seller note come from?
In many RAD tax credit deals the PHA sells the buildings to the new partnership and takes a note for part of the price, which counts as a source. Set it to the part of the acquisition price the PHA will carry back; the rest is paid from other sources.
Sources
- 26 U.S.C. 42, low-income housing credit (govinfo, U.S. Code 2023 edition) (as in force; 2023 edition) 42(b)(3): for buildings placed in service after December 31, 2020 that are not 9% buildings, the applicable percentage is not less than 4%. 42(d)(5)(B): 130% basis in a HUD-designated QCT or DDA (state designation does not apply to bond-financed buildings). 42(f)(1): ten-year credit period.
- Public Law 119-21, section 70422(b) (139 Stat. 234) (July 4, 2025) Bond test: 50% of aggregate basis of building and land, or 25% if at least one bond issue dated after December 31, 2025 finances at least 5% of that basis; for buildings placed in service in taxable years beginning after December 31, 2025.
This is a sizing sketch, not a loan offer, a commitment or advice. Rates shown are illustrative inputs you can change; this site advertises no rates or terms. Lenders, HUD and investors underwrite with their own figures and current guides. Janover Capital LLC is a commercial mortgage advisor, not a lender, and is not affiliated with HUD.
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