The only loophole was deducting interest on non-recourse debt, and that should remain limited in Section 469.
FORBES: Bring Back Housing By Bringing Back Tax Shelters
Just tweak Section 469 to limit its application to non-recourse debt only.
Going into 1986, there were tax shelter abuses, mostly from the use of non-recourse debt, and investors writing off much more than their cost basis.
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.
As such, forgiveness of a non-recourse mortgage resulting from a foreclosure does not result in cancellation of debt income.
FORBES: You Are Not Alone: R. Kelly Joins Taxpayers Who Have Lost Homes Due To Foreclosure
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