Multifamily Image 782x382 1

Strong Quarter leads to Rent Jump for Multifamily in March

According to Yardi Matrix, the average multifamily rents rose by $6 to $1,407 on a year-over-year (YOY) basis in March. This development lead to multifamily rents having one of the strongest first quarters in a few years, with the 0.6% YOY and 0.8% quarter-over-quarter jump. Further, with rents posting a 0.4% month-over-month growth in March, an increase of 20 basis points over February was achieved.

During this period, 134 markets were surveyed with 114 showing flat or positive YOY rent growth. Additionally, 19 of the top 30 metros had flat or positive YOY rent growth in March.

Many of the western locations showed higher growth followed by markets in the southeast. This includes the Inland Empire (8.3%), Sacramento (7.3%) and Phoenix (6.9%), which posted the largest YOY growth. Tampa (5.0%) and Atlanta (4.7%) also posted strong YOY rent growth, benefiting from strong migration and limited new supply. For instance, completions in Tampa and Atlanta over the last 12 months totaled only 2.3% and 2.5% of inventory, respectively.

Yardi also reported that expensive coastal metros are beginning to bounce back, with New York (-13.6% YOY) and San Jose (-12.0% YOY) bottoming out. In fact, San Jose (0.9%) joined Sacramento (1.0%) in having the highest short-term rent growth in first quarter.

Twenty-six of the top 30 markets had flat or positive month-over-month rent growth in March. It was noted in Yardi that Raleigh, which dropped 0.9%, was an outlier among the strong Southeastern markets. The reason could be that 3.9% of stock has been completed in Raleigh during the last 12 months. Raleigh was second only to Austin, with the second most deliveries over the last 12 months.

While lifestyle rents have been hit the hardest during the pandemic, they rose 0.5% month-over-month during first quarter. Rents in renter-by-necessity apartments, which had been performing better during the pandemic, only increased 0.3%. Twenty-seven of the top 30 metros had flat or positive month-over-month lifestyle rent growth. Half of the top 30 metros also saw positive lifestyle rent growth.

Yardi reported that it expects things will continue to improve with the $50 billion of emergency rental assistance and other support to the housing industry that was included in the most recent federal aid package. “This funding is bound to have a positive effect on occupancy and rent growth throughout 2021,” a Yardi’s analyst’s state.

A recent report from Apartment List echoes Yardi’s sentiment about an improving rental market. In March, Apartment List’s national index jumped by 1.1%, which was its largest monthly increase going back to the beginning of 2017. That doubled historical growth in the month. In the previous three years, March’s year-over-year rent growth was 0.6%.

Recently, Apartment List’s index started growing ahead of seasonal trends. It saw improvement in both pricey coastal markets and smaller cities that have grown popular through the pandemic. The markets that saw the fastest declines in 2020 are starting to experience the most significant jumps in 2021.

WestDallas 06

Affordable Housing Market in 2021

The affordable housing crisis in the U.S. continued to deepen in 2020 even though there has been tremendous efforts made to change that. Currently, there is a national shortage of more than 7 million affordable homes for the country’s more than 11 million extremely low-income families, according to the National Low-Income Housing Coalition.

Providing access to safe and affordable housing is essential to reducing economic inequalities, yet no state has adequate affordable housing supply for low-income renters, per the NLIHC report.

The simplest solution to America’s housing crisis is delivering more supply. However, beyond obstacles—such as rising land costs, labor shortages and burdensome regulations—that make affordable housing development difficult, there are other, more fundamental issues standing in the way of a more affordable housing market. A major issue is that most of the available homes are in places where there are no jobs that provide opportunities for growth and stability. Instead, workplaces are located in a few areas where housing has become highly unaffordable. Additionally, the available supply doesn’t fit the needs of today’s generation.

Another major challenge for developers is putting together the funding stack and finalizing the closing. The year-end bill submitted last month and passed by congress sets the Low-Income Housing Tax Credit floor at 4 percent, which is set to help developers assemble the funding stacks more easily. These changes would allow for up to 25 percent additional capital to the stacks and help fund budget gaps on current deals, which would allow for larger deals, effectively increasing unit counts, and ultimately increasing the amount of capital that can be allocated by municipalities to projects.

President Joe Biden’s campaign platform called for spending $640 billion on housing programs in the next few years, including establishing a $100 billion Affordable Housing Fund to construct and upgrade affordable housing, increasing funding for the Housing Trust Fund Program by $20 billion and expanding the Low-Income Housing Tax Credit Program by $10 billion. It is still too soon to tell if and how all these plans will materialize but the affordable housing market remain eyes opened.

happy holidays 2020 concept top view vertical vector 26317138 e1607351942219

Happy Holidays 2020

Horizon Companies would like to wish you and your family a holiday season filled with peace and happiness. This year has been challenging for mostly everyone. Social distancing, mask mandates, and quarantines have become the norm. Sadly, these measures were not enough and many around the world succumbed to Covid-19. The coronavirus delivered many devastating consequences to families, society and businesses however, we still have an opportunity to overcome these challenges if we continue to work together.

Horizon Companies continues to strive toward unity by working together with our apartment communities, families, leasing offices, vendors, and partners to overcome these uncertain times. Facing the pandemic as a world issue, united across the globe would surely help end the crisis. Sure, global unity is not realistic but we can look at our own lives and see how we can unite with our families and neighbors.

The election process of 2020 showed the world that Americans are deeply divided on just about everything. During this season of reflection and thankfulness let us agree on these basic human rights; the right to life and liberty, freedom from slavery and torture, freedom of opinion and expression, the right to work and education and the right to choice to name a few. We are each entitled to these rights, without discrimination.

We at Horizon Companies respect and value all, may this year end with positive reflection and great gratitude!


By: Quinn Newton

ca times.brightspotcdn

Understanding The Eviction Moratorium

SARS-COV-2 caused devastating disruption worldwide in mostly every financial market. Millions of workers experienced some sort of financial loss. Reduced hours, furloughs and complete job loss challenged many families. It’s understandable how meeting financial obligations including rent could become a challenge. Back in March, Congress stepped in passing the CARES Act Eviction Moratorium.

CARES Act Section 4024(b) prohibited landlords from starting eviction proceeding or charging late fees or penalties against a tenant for nonpayment of rent. These protections extended for 120 days from March 27, 2020 until August 24, 2020. The moratorium did not absolve tenants from legal responsibilities. The moratorium mostly allowed individuals a chance to work through current challenges under a grace period. The 120 days provided many with peace of mind that an immediate eviction would not occur if unable to pay their rent.

The initial moratorium expired on August 24, 2020 assuming the US would have a better grasp on coronavirus spread. Unfortunately, the virus is still spreading without any signs of slowing down. The Centers for Disease Control Director, Dr. Robert Redfield, used executive power attempting to slow the spread by signing a new declaration. Signed on September 4, 2020, the new declaration focuses on mass evictions. The CDC’s concern is how mass evictions could be detrimental to public health control measures currently in place to slow spread.

The declaration requires Renter’s or Homeowner’s to provide a signed copy of the Declaration under penalty of perjury. Individuals must exhaust all efforts to obtain all available government assistance for rent or housing. Individuals must meet an annual income of no more than $99,000. Individuals are unable to pay rent due to substantial loss of household income. Individuals are attempting to make timely partial payments as close to the full payment as possible. Individuals would likely be homeless if evicted. If these requirements are not fully executed persons signing the declaration could be prosecuted.

Many landlords are fighting the declaration as unconstitutional. They are suing the Trump administration and CDC over the executive. Certainly, this is a tough position for many and coming together is key. Landlords, tenants, and financial institutions must work together. Everyone has a role to ensure the most favorable outcome.

Here at Horizon we truly value our tenants and staff. We believe in working together. These are without question unprecedented times. Communication is key now more than ever. How we respond during these times show who we are and what we value.  If you find yourself challenged with maintaining your rental responsibilities, please contact your leasing office. We are in this together!

By: Quinn Newton


2021 QCTs and DDAs

The Department of Housing and Urban Development (HUD), published a notice designating 2021 QCTs and DDAs on September 24, 2020 in the Federal Register. Designations are made annually for all 50 states including the District of Columbia, Guam, Puerto Rica and the US Virgin Islands. The Qualified Census Tracts (QCTs) and Difficult Development Areas (DDAs) are qualified for 30% basis boost in LIHTC properties under Internal Revenue Code Section 42.

DDAs, defined as “areas with high land, construction and utility costs relative to the area median income and are based on Fair Market Rents, income limits, the 2010 census, and 5 year American Community Survey (ACS) data” (HUD). QCTs, are “areas where either 50 percent or more of the households have an income less than 60 percent of the AMGI for such year or have poverty rate of a least 25 percent” (HUD).

The American Community Survey (ACS) is not widely known as the census. The census collects data from every household every 10 years. However, the ACS gathers data every year from random addresses. The ACS like the census is required by law under Title 13, US Code. The ACS data focuses annually on housing, jobs, and education along with social and economic needs of communities. Struggling communities experienced another devastating blow this year, a pandemic.

Since SARS-Cov-2 has greatly devastated communities across the world, it is no surprise that communities with lower Area Median Gross Income levels and high poverty rates have been hit the hardest.

The challenges Developer’s face with Low-Income Housing Tax Credits (LIHTC) projects are certainly compounded as the SARS-Cov-2 pandemic continues to rage. The pandemic has resurfaced the disparities around housing, a basic need, suggesting that creative and new initiatives to support Affordable Housing are needed in the foreseeable future just like they have been in the past.

By: Quinn Newton

construction housing

Apartment Market Post Covid19

New reports show that rental units accounted for 96% of multifamily construction starts during the second quarter of 2020, which took additional market share from the condo market.

According to The National Association of Home Builders, quarterly data from the Census Bureau, noted that 76,000 rental multifamily started and with only 3,000 condo starts.

By comparison, apartment starts have been about 90% or higher since late 2014. Apartment starts hit the bottom in Q3 2005, when condo construction was booming. During that time, apartment construction hit 47%.

Rental multifamily starts traditionally have held more market share over condos. From 1980-2002, the average market share for apartments was 80%, according to NAHB.

While more apartments are going up, their square footage is staying down, according to NAHB. The average square footage of rental units during the second quarter of this year was 1,126, well below the pre-Great Recession peak of about 1,300. In early 2015, square footage reached a post-recession peak of 1,247 square feet.

Depressed dwelling sizes may not last long, according to NAHB, particularly in light of the new work from home trend.

Though apartments took more market share from condos, new construction has been reduced by 12% this year due to Covid19, according to RentCafe Blog. “The downtrend is mainly due to the slower pace of construction, as a result of a shortage of available construction crews, funding and permits, along with some temporary bans on construction projects in certain states,” the report said.

However, housing construction overall has been driving up lumber prices according to NAHB.  The price of lumber has shot up 110% since mid-April. It is estimates that these recent gains have boosted typical new single-family home prices and apartment prices by approximately $14,000 and $5,000, respectively.

Pricing of multifamily has so far, not been too affected by COVID-19. At least it hasn’t caught up to it yet.

Housing Infrastructure

Housing Infrastructure Legislation

Sweeping infrastructure legislation released Monday, June 22, 2020 in the House of Representatives includes provisions to establish a permanent minimum 4 percent rate for the low-income housing tax credit (LIHTC), increase the annual LIHTC allocation amount, temporarily reduce the 50 percent test for bond-financed housing to 25 percent and permanently extend the new markets tax credit (NMTC) at $5 billion (with additional allocation in 2020 and 2021). H.R. 2, the Moving Forward Act, also would increase the historic tax credit (HTC) applicable percentage from 20 percent to 30 percent for five years and delay the phasedown of the renewable energy investment tax credit (ITC) until 2026.

Among the affordable housing provisions, the bill would increase the annual 9 percent LIHTC allocation amount from $2.81 to $4.56 per capita and boost the state private activity bond ceiling from $105 per capita to $135 per capita. Both provisions would increase the small-state minimum. The legislation would also provide a 150 percent first-year LIHTC award to address issues related to COVID-19 and provide several basis boosts for LIHTC properties, similar to proposals in the Affordable Housing Credit Improvement Act (H.R. 3077/S. 1703). It would also provide more than $100 billion in supplemental appropriations for various HUD programs, mostly notably $70 billion for the public housing capital fund.

The NMTC would be permanently extended, with an additional $500 million allocation for the 2019 round (for a total of $4 billion) and temporary increases for 2020 (for a total of $7 billion) and 2021 (a total of $6 billion) before settling at $5 billion 2022, with an annual adjustment for inflation. The bill would also allow the NMTC permanently to be taken against the alternative minimum tax, and instructs Treasury to ensure that tribal areas receive a proportional allocation, similar to existing policy for non-metro areas.

The legislation would increase the HTC from its current 20 percent to 30 percent for 2020 through 2024, before beginning a phasedown for most HTC properties back to 20 percent through 2027. The bill would also permanently increase the HTC percentage for certain small projects to 30 percent, and several other proposals from the Historic Tax Credit Growth and Opportunity Act (H.R. 2825/S. 2615).

The bill would delay the phasedown of the renewable energy ITC until 2026 and allow many uses of the production tax credit to cover facilities that begin construction by the end of 2025. A section-by-section summary of the bill is available.

covid 19

COVID-19 Update

Most of the Cities and Counties of our residence issued an emergency order directing people to “Stay Home, Work Safe” due to the COVID-19 coronavirus. And this order will remain in effect until it is rescinded by your individual City or County.

Under the order, people within the counties are asked not to leave their residence except to perform “essential travel.” Some reasons for essential travel include:

• To engage in activities or perform tasks essential to their health and safety, or to the health and safety of their family or household members (for example, obtaining medical supplies or medication, visiting a healthcare professional, or obtaining supplies needed to work from home).

• To obtain necessary services or supplies for themselves and their family or household members, or to deliver those services or supplies to others (for example, food, pet supplies, and any other household consumer products, supplies needed to work from home, and products necessary to maintain the safety, sanitation, and essential operation of residences). 

• To engage in outdoor activity, provided the individuals comply with social distancing requirements of six feet (for example, walking, biking, hiking, running, or fishing).

• To perform work providing essential products and services at an Essential Business or to otherwise carry out activities specifically permitted in this Order.

• To care for a family member or pet in another household.

We continue to follow our increased disinfecting process and constant monitoring of the latest from federal, state, and local officials; our policies are consistent with the Centers for Disease Control and Prevention (CDC). Please review the preventive measures from their website  

Please know that the safety, security, and well-being of all of our residents and employees are our number one priority. 

We are currently working on a modified schedule for our operations for the time being and will alert you once that has changed. For now, all resident clubhouses, pools, fitness centers, and business centers will remain closed until further notice. 

If you have any questions or concerns, please do not hesitate to let us know and more importantly, please stay safe!

Footer CTA

Multifamily Outlook for 2020

The overall vacancy rate for multifamily is expected to rise by 20 bps to 4.5%, which is still below the long-term average of 5.1%. Rent growth is expected to be down to about 2.4%, slightly under the long-term average of 2.6%.

In 2019, new construction apartment demand was around 300,000 units however, a slower economic growth for 2020 anticipates apartment demand to be around 240,000 units in 2020, roughly 20% less than 2019. Multifamily demand is expected to remain sufficient enough to absorb a healthy new supply of units within the market.

It is expected that development will continue in both urban and suburban locations in 2020. Although, geographical the focus is shifting to the suburbs—both mid-rise “urbanesque” product in the densifying suburbs and garden product in more traditional greenfield locations. Buying or building in the suburbs will remain the best bet based on market performance and investment returns. Suburban multifamily is expected will outperform urban, maintaining lower vacancy and achieving higher rent growth.

Investors and developers should also consider smaller metros (e.g., less than 2 million population). While liquidity and overbuilding risks are generally higher in smaller markets, there are several metros with exceptional multifamily performance today resulting from favorable supply/demand fundamentals (steady growth over recent years and only moderate development activity). Many smaller metros are undergoing a significant upgrading of their urban cores, thereby improving quality of life and helping them retain talent. Seven smaller metros had 4% or higher rent growth as of Q3 2019: Albuquerque, Birmingham, Colorado Springs, Greensboro, Memphis, Dayton and Tucson. They are likely candidates for outperformance in 2020.

Opportunity Zones

Opportunity Zone Proposed Regulations

On October 19, 2018, the Department of the Treasury released taxpayer-friendly proposed regulations (the “Proposed Regulations”) under Section 1400Z of the Tax Code. Due to the lack of administrative guidance, fund managers and other investors have hesitated taking advantage of new tax benefits designed to incentivise private sector investment into economically-distressed “opportunity zones.” The Proposed Regulations have been well received and will cause many investments to move forward.

Opportunity Zone Tax Benefits

As part of the Tax Cuts and Jobs Act enacted into law in December 2017, the Opportunity Zone statute (codified as Section 1400Z of the Tax Code) provides two main tax incentives designed to encourage investment in opportunity zones. First, the legislation allows for the deferral of gain to the extent that corresponding amounts are reinvested into one of more “qualified opportunity funds” (or QOFs). Second, the legislation excludes from gross income the post-acquisition gains on investments in QOFs that are held for at least 10 years.
The Opportunity Zone legislation left a lot of questions unanswered regarding how to comply with the rules. This lack of guidance meant that taxpayers have been unwilling to make investments for fear that they would not be entitled to receive the favorable tax treatment that the legislation provides. While the Proposed Regulations still leave some questions unanswered, they provide enough certainty to allow for prudent investment.

Proposed Regulations

The Proposed Regulations both describe and clarify the requirements that must be met by a taxpayer in order to defer the recognition of gains by investing in a QOF and provide rules for QOFs relating to self-certification and some of the ongoing requirements imposed on QOFs.

The proposed regulations do not address all questions. The Department of Treasury and the IRS are working on additional published guidance, including a second round of proposed regulations expected to be published in the near future. While not intended to be a complete description of all changes, we note the following:

Rules Relating to Taxpayers Deferring Gain

Clarification of eligible taxpayers. The proposed regulations clarify that taxpayers eligible to elect gain deferral are those that recognize capital gain for Federal income tax purposes. These taxpayers include individuals, C corporations (including RICs and REITs), partnerships, and certain other pass-through entities. 

The proposed rules include special rules for partnerships and their partners. Specifically, while there was no question that a partnership could defer gain, the proposed regulations clarify that a partner may elect gain deferral with respect to its allocable share of partnership gain, assuming the partnership fails to do so.

Capital Gains Only. The proposed regulations clarify that only capital gains are eligible for deferral. Eligible gains generally include capital gain from an actual, or deemed, sale or exchange, or any other gain that is required to be included in a taxpayer’s computation of gain. (Certain statutory exceptions apply, including gains from a sale or exchange to a person closely related to the taxpayer.) Short or long term capital gains are both eligible.
The proposed regulations provide limitations/exceptions for gains under “Section 1256 contracts” and for gains from positions that are of have been part of an offsetting-position transaction (meaning, a transaction in which the taxpayer has substantially diminished its risk of loss from holding one position with respect to personal property by holding one or more other “offsetting” positions).

Equity Investments Only. To unlock QOF benefits, the taxpayer must make an investment in exchange for an equity interest. An equity interest includes preferred stock or a partnership interest with special allocations. Provided that the taxpayer is the owner of the equity interest for Federal income tax purposes, the taxpayer may use that interest as collateral for a loan (whether a purchase-money borrowing or otherwise) without jeopardizing eligibility.
That said, if the taxpayer instead chooses to structure its investment as a loan to a QOF (as opposed to an equity investment), the taxpayer will not be entitled to defer its prior gains or otherwise enjoy the tax benefits that the Opportunity Zone legislation provides.

Timely Elections. To be able to elect to defer gain, a taxpayer must generally invest in a QOF during the 180-day period beginning on the date of the sale or exchange giving rise to the gain. For a partner (or other person indirectly realizing gain through a pass-through entity), the 180-day period begins on the last day of such entity’s taxable year.  
That said, the proposed regulations provide a special rule for partners where the partnership is the entity realizing gain and will not elect to defer the gain: In this scenario, if the partner knows both the date of the partnership’s gain and the partnership’s decision not to elect deferral, the partner may choose to begin its own 180-day period on the same date as the start of the partnership’s 180-day period. Similar rules apply to other pass-through entities (including S corporations, decedents’ estates, and trusts) and to their shareholders and beneficiaries.

Election for Investments Held at Least 10 Years. Under the opportunity zone legislation, a taxpayer that holds a QOF investment for at least ten years may elect to increase the basis of the investment to its fair market value on the date that the investment is sold or exchanged and thus, effectively exclude that gain from income. This basis step-up election is available only for gains realized upon investments that were made in connection with a proper deferral election. The proposed regulations reiterate that it is possible for a taxpayer to invest in a QOF in part with gains for which a deferral election is made and in part with other funds. This results in a “mixed” QOF, where the tax benefits associated with a QOF are available only with respect to that part of the taxpayer’s investment relating to realized gains.

Under the opportunity zone legislation, all qualified opportunity zones will lose their designation on December 31, 2028. This raises issues regarding gain deferral elections that are still in effect when the designation expires. The proposed regulations address these issues by permitting a taxpayer to make a basis step-up election after a qualified opportunity zone designation expires. The ability to make this election is preserved until December 31, 2047, which is 20 ½ years after the latest date that an eligible taxpayer may make an investment that is part of an election to defer gain.

Rules Governing Qualified Opportunity Funds

Certification Process. To facilitate the certification process and minimize the information collection burden placed on taxpayers, the proposed regulations generally permit any taxpayer that is a corporation or a partnership for tax purposes to self-certify as a QOF, assuming the entity is statutorily eligible to do so. It is expected that taxpayers will use IRS Form 8996, Qualified Opportunity Fund, both for initial self-certification and for annual reporting of compliance with the 90-percent asset test.

The proposed regulations allow a QOF both to identify the taxable year in which the entity becomes a QOF and to choose the first month in that year to be treated as a QOF. Any investments made by taxpayers prior to this date will not be eligible for QOF tax benefits.

Valuation Method for 90-Percent Asset Test. To avoid penalties, the opportunity zone legislation requires a QOF to hold at least 90 percent of its assets in qualified opportunity zone property, determined by the average of the percentage of qualified opportunity zone property held in the fund (A) on the last day of the first 6 month period of each taxable year and (B) on the last day of such taxable year. The proposed regulations require the QOF to use the asset values reported on the QOF’s applicable financial stated for the taxable year. If the QOF does not have an applicable financial statement, the proposed regulations require the QOF to use the cost of its assets.

Nonqualified Financial Property. With certain limited exceptions, the opportunity zone legislation does not consider cash as qualified opportunity zone property. As such, cash held in the QOF may cause the QOF to fail the 90-percent asset test, even if that cash is held with the intent of investing in qualified opportunity zone property.

The proposed regulations provide a working capital safe harbor for QOF investments in qualified opportunity zone businesses that acquire, construct, or rehabilitate tangible business property. Provided there is both a written plan that identifies the financial property as property held for the acquisition, construction, or substantial improvement of tangible property in the opportunity zone and a written schedule consistent with the ordinary business operations of the business that the property will be used within 31 months, then this safe harbor will apply, assuming the business substantially complies with this schedule.

Substantial Improvements. Among other things, to be considered qualified opportunity zone business property, the original use of such property in the opportunity zone must commence with the QOF or the QOF must substantially improve the property, which is satisfied by the QOF making additions to basis with respect to the property within 30 months of acquisition in an amount which exceeds the acquisition price for the property. In other words, improvements to the property must result in at least doubling the QOF’s basis in the property.

For purposes of this requirement, the proposed regulations provide that the basis attributed to land on which a building sits is not taken into account in determining whether the building has been substantially improved. 

Contemporaneous with the issuance of the proposed regulations, the IRS released Revenue Ruling 2018-29, which addresses the application to real property of the “original use” and “substantial improvement” requirements of the legislation.

Qualified Opportunity Zone Businesses. Under the opportunity zone legislation, for a trade or business to qualify as a qualified opportunity zone business, it must (among other requirements) be one in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property. 

The proposed regulations provide that if at least 70 percent of the business’s tangible property is qualified opportunity zone property, then the trade or business is treated as satisfying this “substantially all” requirement. The proposed regulations note that the phase “substantially all” is used throughout the opportunity zone legislation, and that the 70 percent threshold is intended only to apply to such term as is used for determining whether the business is a qualified opportunity zone business.

Mixed Funds. If only a portion of a taxpayer’s investment in a QOF is subject to the deferral election, then the opportunity fund legislation requires the investment to be treated as two separate investments, which receive different treatment for Federal income tax purposes. The proposed regulations reiterate that a taxpayer may make an election to step-up basis in an investment in a QOF that was held for 10 years or more only with respect to that portion of such investment for which a proper deferral election was made. 

For investments made through partnerships, the proposed regulations clarify that deemed contributions of money under Section 752(a) (i.e., partnership liabilities) do not constitute an investment in a QOF. Therefore, such a deemed contribution does not result in the partner having a separate “mixed fund” investment. Thus a partner’s increase in outside basis is not taken into account in determining what portion of the partner’s interest is subject to the deferral election (or what portion is not subject to the deferral election).

Effective Date

The proposed regulations are effective after a 60-day comment period and once they are later published as final. However, taxpayers and QOFs may rely on the proposed regulations now, provided they apply the proposed rules in their entirety and in a consistent manner.
The full text of the taxpayer-friendly proposed regulations can be accessed here: