Affordable housing finance
Developer fee
The sponsor's CTCAC-capped compensation line. It sits in eligible basis and earns credits; the deferred slice is the standard filler for funding gaps.
Definition
The developer fee compensates the sponsor for creating the project, and because it capitalizes into eligible basis under IRC § 42, it also generates credits. In California the CTCAC regulations cap it — percentage-of-basis limits with dollar ceilings that vary by deal type, revisited in the annual regulation cycle — and police related-party layering. Sponsors routinely defer part of the fee as an obligation of the partnership, filling the final funding gap; the deferred piece is then repaid from operating cash flow over time.
Why it matters in an underwrite
The fee is the sponsor's margin and the deal's shock absorber at once: cost overruns get absorbed by deferring more fee, and the deferral is often the difference between a balanced and a broken sources-and-uses. Two disciplines bound it: CTCAC's feasibility review expects deferred fee credibly repayable from projected cash flow, and the IRS audit guide treats inflated or non-bona-fide fees as an eligible-basis adjustment — a fee that cannot realistically be paid can be knocked out of basis, taking its credits with it.
Sources & related guides
See also
See the term in the law itself
Read the controlling text in the Code Library, or ask the AI how it applies to your project.
Last reviewed 2026-07-29. General information, not legal advice.