Generally, you probably will still qualify for some tax breaks against the rental income itself, but perhaps he/she meant that you may not be able to use any real estate losses to offset your ordinary wages, interest, dividends, etc? 

According to @Jay Hinrichs, the back yard might be a separate S corporation as developer for ordinary taxable gains and the front part a 1031 exchange for capital gains. 

In this scenario, you're subject to ordinary income tax.

You lost compared to a leverage REI investment.Let alone the Capital Gain versus Ordinary income on short term cash or debt investments  Risk is higher on financial investments than REI whether the interest rate increases or decreases.

A lot of states don't recognize rental income as net ordinary income, which is needed for the PTET deduction.

And just like with the others above there are some good deductions you should be taking advantage of here as well.S-CorpW2 income – that’s easy, you probably understood that your W2 income can be added BACKK-1 income (box 1 & 2) – also pretty self-explanatory, but just in case, it’s added BACKAmortization/Casualty Loss – Added BACKDepreciation 1120s (line 14 & 15) – Added BackHowever….Mortgage Notes, bonds payable in less than 1 year (Schedule L, line 17)- this is SUBTRACTED from your incomeMeals & Entertainment (Schedule M1, Line 3b) – SUBTRACTED from your incomeNon re-occurring Other Income (1120s line 5) – SUBTRACTED from your incomePartnershipsW2, K1 (box 1,2, & 4), Depreciation, Amortization/Casualty Loss – all added BACKNon re-occurring Other Income, Meals and Entertainment, Mortgage Notes payable in less than 1 year, AND Ordinary income from Other (1065 line 4) – all SUBTRACTED from your income*WHEW* What a lot of information and we could probably spend ENDLESS amounts of time on this subject.

Going back to ordinary and necessary - if you own just one or two properties and spend thousands on your clothing with your logo on it - may be a bit of a stretch!

STRs do not require you to be a REP in order to take losses against ordinary income.

Real estate success is all about due diligence and knowledge especially of the market you buy in.I am interested in the Algarve in Portugal and with all the Brits having to sell up we should see some deals.Again my buddy with the Akumal condo is heading to Portugal this summer and has spent about a year researching the market and making contacts.

A Traditional IRA will convert what should have been an optional gain taxed at cap gains rates into a mandatory tax at ordinary income tax rates.