While you shouldn’t categorize all tenants and it’s the landlords responsibility to properly screen, the tenants who reside in better situated housing and pay higher rents are more financially responsible meaning lower rate of rent loss and will generally take better care of the property which combined will result in less time allocated towards management functions if self-performed or more favorable management fee structures if 3rd party management companies are utilized (which ties back to #1, as well).

They can claim business overhead expenses, and they must file 1099s.REPS determines whether the resulting losses can be applied against your W2 income or not.

Problem is only "RE pros" get to do it.There are 3 income classifications in the US - Active, Portfolio, and PassiveActive income is income derived from your job, or normal trade or business.Portfolio income is derived from bank instruments - stocks, bonds, etc.Passive income is income earned from investments.Active losses can wipe out both passive and portfolio income, but it doesn't work the other way around.Portfolio (capital) losses are limited to $3,000 annually.Passive losses can only be offset by passive gains.Real estate rental income by its nature is deemed passive per IRC Sec 469One way to get around it is to become a pro - spend more than 750 hours or 1/2 your time in real estate.But most folks aren't real estate pros.

The most likely scenario is that his renters will eventually do something that costs him a significant loss, despite cutting them a major break for so long. 

Not only that, they sued and won on a theoretical loss not even a factual one as the plaintiffs sued stating IF they (a) they think the result would have been (b). 

Uses the syndication depreciation losses to help offset active incomeI did read your post mentioned above @Michael Plaks which is very informative.

As I've observed, after a down period, the market tends to recover and show growth for approximately three years.Timing the market is a skill every real estate investor should develop.

@Rud Sev Your Section 1231 losses from the sale of rental properties were likely correctly reported on Form 4797 (Part I) as ordinary losses, allowing them to offset all types of income.

We’re at a loss on how to resolve this and make our home livable again.

Once you have REPS the distinction between passive income (or losses) and active income (W2) disappears and all those tax losses you have been banking can be applied to the W2.Good luck