The contribution of property into the fund will only create a basis in the fund of the current tax basis, not the market value. No gain is recognized. This may not be a qualified contribution if the contributor has no other capital gains. If the property is sold to the fund, a gain could be recognized and the gain could be invested in the fund as a qualified investment. This will work as long as the total interest in the fund is less than 20%. Otherwise the related party rules will apply and the investment will be determined non qualified for tax benefits.