However, when you get to forms 8582 (passive activity loss limitations) and form 4562 (depreciation & amortization), it's less math & more theory. 

Hi All - I've seen quite a bit of confusion on the application of the Passive Activity  Loss Rules and Short Term Rentals. 

Worst case, it gets outlawed in a town AFTER you’ve bought a place there & now you have to sell at a HUGE loss bc there’s no buyer demand once STR use is banned!

If the market slows down even just a little...catches a tiny little cold...you will lose all your money and the lender will likely take a loss also.I ran a distressed debt fund for 5 years, DO Income Fund, and we had hard limits when buying distressed debt.

What you guys probably do not realize is that you cannot generate ANY tax loss when you rent out part of your house.

Sorry for your loss. 

STRs have very substantial tax advantages compared to other strategies as long as proper tax planning is done.Let’s start by getting an understanding of how rental property loss recognition has evolved over time.

This creates two loan payments ($100,000 of equity and $300,000 on the new mortgage).Key NumbersHome Equity Loan Interest Rate: 6%Mortgage Interest Rate: 7%Rental Income: $3,000 per monthExpenses (management, taxes, insurance, maintenance): $800 per monthIncome and ExpensesMonthly Rental Income: $3,000Monthly Expenses: $800Monthly Mortgage Payment: $2,000ExplanationThe investor earns $3,000 in rent each month.They pay $2,000 on the investment property mortgage and $800 on other expenses.This leaves $200 profit each month or $2,400 per year.However, you have to pay $6,000 interest on the equity borrowed.This leaves you with an annual loss of $3,600.While the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall annual loss.

I myself am into the six figures in losses so far...

However, I agree it’s better to just cut the losses now and learn from this crazy experience.