Problem is that renting out real estate is penalized in the tax code under Section 469 passive activity rules and that put a major damper on this timely investment idea. While Congress and President Obama can’t turn around the housing market, they can fix this penalty and help it improve.
Section 469 was passed to put an end to rampant use of egregious tax shelters, including real estate syndicates. Investors were deducting tax losses on non-recourse debt — in other words taking tax losses for money they might never part with, unless they had gains later on. With these non-recourse interest tax losses baked in, investors were guaranteed to win after tax.
I want Congress to allow all real tax losses again, and only apply Section 469 to non-recourse debt, suspending those losses to later gains. Congress went too far with Section 469 by suspending all tax losses, and now that housing is suffering, it shows the mistakes Congress made.