My GP told me my basis step-up is worth almost nothing now and I cannot stop turning that over

The 2026 inclusion date killing the step-up is not news but your GP framing it as just "factual" while he still collected the management fee on the commit is a specific kind of irritating. The permanent exclusion on appreciation after ten years is the only benefit left standing, and whether that carries enough weight depends entirely on what the underlying deal actually is, not what asset class it sits in.

What I would be pressing on right now: what was the GP's projected IRR on the fund before they layered in any tax benefit, and what does it look like stripped of the deferral math you were sold on. A lot of these QOF decks were underwritten to hit "comparable" returns only when you stacked the tax benefit on top of thin real estate economics. If the deal pencils at a 14% IRR before tax treatment and your Texas deployment would have cleared 12% with less lock-up, the OZ premium is still there. If the gap closes to two or three points and you are ten years illiquid in a fund structure versus owning something you can see, that is a different calculation.

What was their stated vacancy assumption on the underlying assets, and has anything in the first year of operations tested that number?

What you are describing is the basis step-up timing problem that a lot of early OZ investors ran into. The short version: when you invested, the statute offered a 10% reduction in the deferred gain if you held for five years before the recognition date. But Congress set December 31, 2026 as the date when all deferred gains get recognized regardless, and your five-year mark falls in 2029, after that deadline. So the step-up benefit existed in the law when you made the decision, and it still does not help you because the calendar math did not cooperate. That is not a mistake on your part. It is a timing problem baked into the structure.

The question you are actually sitting with now is a different one: is the ten-year appreciation exemption, meaning you pay zero tax on any gains the fund itself generates after your original hold period, worth the illiquidity compared to a direct Texas deal where you can read the rent roll and see the cash flow yourself?

That comparison depends on two numbers I do not have: what return the fund is projecting on the underlying assets, and what you think you could realistically return on that Texas deal. Nobody can answer it without those, and even then it is a projection, not a promise. A tax professional who knows the OZ rules should also review exactly how your inclusion event gets calculated given the One Big Beautiful Bill Act changes to deferral, because the permanence rules affect the mechanics for newer investments and it is worth confirming how they interact with yours.

One thing worth sitting with: the ten-year exemption on new appreciation is still real and still in the permanent statute. Whether it is enough to justify the premium over a deal you understand directly is the honest question.

What is the fund actually investing in, and do you have a sense of the underlying deal economics?