The 30 percent basis step-up is gone and I want to think through what that actually does to the arithmetic of a long-hold QOF position.

On current rents or pro forma is exactly the right fight to pick.

Every deck I've seen underwrites to stabilized, which in a 2024 OZ fund means they're pricing in rent growth that hasn't happened yet in markets that are still absorbing 2021-era supply. What's the vacancy assumption, and is it pre- or post-lease-up?

The arithmetic you've laid out is correct, and the assumption doing the most work is the after-tax reinvestment rate on the deferred capital for those two years before the 2026 inclusion date. The step-up used to mechanically reduce the taxable event at inclusion. Now the investor has to actually earn their way to the same after-tax position through active deployment of the freed-up tax liability. Two years is a short window, and if that capital sits in anything low-yield while waiting for inclusion, the deferral benefit compresses fast.

The rate differential assumption matters too. You mentioned the possibility that rates rise between now and December 31, 2026. That's a real variable, but it cuts both ways. A meaningful rate increase raises the cost of the 2026 inclusion event relative to what the investor projected when they committed. Confirm with your tax advisor what the inclusion mechanics look like under current law for a 2024 investment, because the One Big Beautiful Bill Act's rolling five-year deferral applies to post-2026 investments, so your 2024 position is still on the prior inclusion schedule.

The shift you've identified in due diligence burden is the structural consequence that most allocators are underweighting right now. A QOF that underwrites to, say, a 12 percent net IRR on its real estate assets was a different risk proposition when 15 points of basis step-up sat underneath it. Without that, you're essentially buying the appreciation exclusion at a premium, and the premium is the quality of the underlying deals. Fund managers who built their pitch around the step-up as a return contributor need to show you how the underlying asset-level return stands without it.

On your closing question: I'd push further than the rent versus pro forma distinction. I'd want to know whether the fund's exit cap rate assumption is tighter or wider than the entry cap rate, and what year they're projecting exit. That single assumption often explains more variance in the projected IRR than rent growth does.

What's the fund's projected exit cap rate relative to what they're underwriting at acquisition?