Qualified Allocation Plan (QAP)

What Is a Qualified Allocation Plan?

A qualified allocation plan (QAP) is the rulebook a state uses to hand out Low-Income Housing Tax Credits. Each year the federal government gives every state a fixed supply of credits. A state housing finance agency or similar body decides which developments get them, and the QAP explains how it decides.

Section 42(m) of the Internal Revenue Code makes the plan mandatory. The plan must be approved by the government the agency belongs to, following the public hearing rules that apply to private activity bonds. If credits are not awarded under an approved QAP, the building’s credit amount is zero.

How It Works

Federal law sets a floor, and states build on it. Every QAP must:

• Set selection criteria suited to local conditions. These must include project location, housing needs, project and sponsor characteristics, tenants with special housing needs, public housing waiting lists, families with children, projects meant for eventual tenant ownership, energy efficiency, and historic character.
• Give preference to projects that serve the lowest-income tenants, stay affordable longest, or sit in a qualified census tract and support a community revitalization plan.
• Describe compliance monitoring, including how the agency inspects properties and reports problems to the IRS.

Agencies commonly turn these criteria into a points system. Developers apply, the agency scores and ranks the applications, and the highest-scoring projects that pass threshold requirements win credits. Before any award, federal law also requires a market study of local housing needs, paid for by the developer and carried out by an independent party the agency approves. The agency may award only as much credit as a project needs to be financially feasible.

The QAP matters most for the competitive 9% credit. Projects using the 4% credit with tax-exempt bonds sit outside the state’s annual credit ceiling but must still meet the QAP’s requirements.

Example

Delaware’s 2025–2026 QAP was approved by the governor on January 3, 2025, after a public hearing in December 2024. It scores applications in categories that include development characteristics, community impact, tenant populations served, use of resources, and development team. It also requires applicants to waive the federal qualified contract process, which closes one way of ending rent restrictions before the extended use period is over.

Criticisms and Limitations

Because QAPs steer where tax credit housing goes, they draw scrutiny. In a 2016 review of 58 allocation plans, the Government Accountability Office (GAO) found that more than half did not explicitly mention all the selection criteria and preferences that Section 42 requires. GAO also reported that some agencies required letters of support from local governments. HUD has raised fair housing concerns about that practice, saying it could have a discriminatory influence on where affordable housing is located. GAO described IRS oversight of allocating agencies as minimal.

Cost is a second concern. A 2018 GAO report on projects from 2011 to 2015 found that the per-unit cost of new construction varied widely among the states it examined and within them. It also found that few agencies had requirements to guard against misrepresented contractor costs.

States revise their QAPs regularly. Delaware’s, for example, covers two years. Each revision is a chance to respond to concerns like these.