There’s been a flurry of news lately about President Trump’s tax returns. He claimed losses on his real estate—and some taxpayers were outraged! If they had to pay their fair share of taxes, shouldn’t he have to also?

However, what the average person doesn’t understand is that real estate losses are typical. In fact, from a business perspective, they can be a good thing (as counter-intuitive as that may seem). Tax code is a list of incentives to possibly qualify for.

Trump, as many business owners do, took advantage of a tax “loophole” known as a net operating loss (NOL). An NOL is created whenever a business reports operating expenses above their revenue that year.

In short, here’s how it works:

A business can apply its NOL as either a “carryback” or “carry-forward.” An NOL carryback is when a business owner carries the NOL amount back to the preceding two years and applies it against any taxable income, which can generate an immediate tax rebate. An NOL carry-forward is when a business carries the NOL amount forward for the next 20 years and applies it against any taxable income, which reduces the amount of taxable income the company owes in those years. After 20 years, any remaining NOL is canceled.

To understand how the NOL provision applies to the real estate industry, it’s essential to take a step back in time.

Before the Tax Reform Act of 1986, tax shelters were readily available to anyone with disposable income and the patience to be a landlord. Consider the following example: In 1985, a pharmaceutical rep earns $350,000 through his wages, bonuses, and commissions (active income). As a way to shelter his active income, he purchases a rental property and leases it at fair market value (passive income). The property gives him large depreciation deductions so on paper; the rental property is operating at a sizable net loss. He uses these net losses to offset the income he earns as a pharmaceutical rep partially. Meanwhile, he is building equity in the rental property, and over time, the property appreciates.

The Tax Reform Act of 1986 ended that tax shelter. The new Section 469 of the tax code stipulated that a person’s losses from a “passive activity” could only be used to offset income from another “passive activity.” That means the pharmaceutical rep could only use his rental property’s NOL to offset the revenue generated through other passive investments. If he does not currently have other passive investments, he can carry forward the NOL until he generates a passive income or decides to sell the rental property.

Some people felt that Section 469 was penned too broadly. It mainly characterized all rental activities as passive. Take the case of a residential real estate developer. He might sell a portfolio of 10 apartments, but keep a collection of 10 homes as rentals. Under Section 469, he would not be able to use NOL from the rental portfolio against the active income generated from the for-sale portfolio.

Unlike those in non-real estate-related industries, who can use the NOL from one aspect of their business against other aspects of their business, the residential real estate developer here cannot use his NOL from his rental portfolio against the different aspects of his firm (development and sale). It creates a disadvantage for anyone who earns their living in the real estate world.

Congress eventually remedied the situation. In 1993, subsection 469(c)(7) was added to the tax code, which provides that a taxpayer who qualifies as a “real estate professional” overcame the presumption that all rental activities are passive. Instead, if the taxpayer can prove that he or she indeed, day-in and day-out earn their living in the real estate world, then rental activities can be classified as nonpassive.

So, the notion that Trump is taking advantage of a “special tax break” is inherently false. Section 469 (and its subsequent revisions) has been put in place to correct an inequity in the tax law that was otherwise preventing real estate professionals from receiving the same treatment as those who earn a living in other industries.

Business owners are often serial entrepreneurs and deciding to pursue a new venture always entails a high degree of risk. Entrepreneurs in the real estate industry are no different. The NOL carryback and carry-forward provisions are a crucial part of ensuring that real estate developers and investors are not punished for taking that risk.

Taxes are complicated. One of the reasons so many people enjoy investing in real estate is because of its tax advantages. When in doubt, it’s always best to consult with your CPA to understand how to take advantage of these tax “loopholes” – that, as we’ve seen here today, aren’t really “loopholes” after all!