You would not be able to exclude it from your DTI until you filed with it on taxes (assuming you did so and did not report a loss). 

If using realistic expense estimates (such as the50% rule), this negative equity can take years to recover.  

In the end, in this REI business you have to have a gut instinct that prevents you from doing these kinds of things, if you don't, you are going to have a lot of loss in REI.ARV might as well be a unicorn in this situation as clearly was not reality. 

You can continue to invest in real estate and create more depreciation losses via cost segregation to offset the recapture though. 

My CPA had some very simple questions about how to handle passive losses and RLS refused to weigh in on the situation whatsoever.

Active = Income earned from Material Participation.Whether that's SMB, W-2, contract income, or prof real estate.This is income where ordinary tax is paid and losses offset other income.

There are several different types of income in the US tax code.Two main types are “active income” and “passive income".Active income is money you earn from working, such as wages from a W-2 job or income from running a business.Passive income is money you earn from investments like real estate, stocks, or rental income from your RE portfolio where you earn $ without actively working.Normally, you can't use passive losses (like losses from real estate investments) to offset active income like your salary from a W-2 job.That is unless you are an RE Pro.The reality is, that Real Estate Pro status is just a filing status similar to filing married or jointly.And if you are a real estate professional you CAN use passive real estate losses to offset active income from other sources.To qualify as an RE Pro you must:1.

If you already have a loss, cost segregation can make it a much bigger loss. 

They have bed bug coverage, and offer loss of use coverage, which I don't know if all other companies have.    

The agreement would outline how profits, losses, and ownership interests should be divided, which will guide how you allocate the gains.