If you lose $100, and you get to deduct that $100 loss, then that saves you the taxes on $100, but unless the marginal tax rate is somehow greater than 100% then you have still lost money.
Where I live this has also shown up in the retail/office split: some of the loudest voices calling for the end of telework are the same real estate moguls who jacked the ground level retail rents up and are now surprised that most of the good restaurants out, and most people don’t go across town for chains. They could afford that when all of the offices were booked but now most office workers are asking why they should be taking time away from work to buy mediocre $16 salads.
As usual with financial instruments, it's probably the result of a model being applied and the limits of the model institute some perverse incentive that is not rational.
In this case seems that the convoluted way of tying up property value to last rental price, and using that proxy to extend margin for loans is where this model breaks down.