Future losses on commercial real estate loans could cost between $200 billion and $300 billion, but easing certain tax levies against investors could alleviate the problem, according to the Congressional Oversight Panel. COP oversees the Troubled Asset Relief Program, which in addition to providing funds to bail out ailing banks and homeowners for residential housing problems, has also been extended to relieve banks of commercial real estate losses. But in 2011 alone, bad commercial loans were at the heart of 10 of the 11 bank closings so far, according to Trepp Analytics. Between 2010 and 2014, roughly $1.4 trillion in commercial loans will reach the end of their terms, and nearly half are underwater, COP reported. Values on the underlying assets have plummeted 40% since 2007, and vacancy rates range from 8% in multifamily properties to 18% in the office sector. Banks still suffering from these problems will be reluctant to lend again, but COP pointed out a more direct effect to everyday life. "A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels and retail stores could lead directly to lost jobs," COP said. "Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment." COP said easing tax burdens on investors could be a possible solution to modify these troubled loans and reintroduce capital to the market. Global investment in U.S. commercial real estate is expected to jump between 20% and 25% in 2011, according to a report in January from Jones Lang LaSalle (JLL). Attracting these outside investors to each the equity crunch could be a pivotal solution, but these investors "can be hit with double or even triple taxation on their investments in U.S. real estate," COP said. It proposed alleviating pressures from the Foreign Investment Real Property Tax Act that can subject a foreign corporation of to a 30% income tax on these investments, which often push them out of the market and into stocks and bonds. On the secondary side, several tax issues complicate workouts for loans bundled into commercial mortgage-backed securities. Many CMBS deals are structured as real estate mortgage investment conduits, commonly known by their acronym, REMICs, which are pass-through entities, and they are not taxed on their income but taxed on what is passed through to investors. Without this REMIC status, COP said a CMBS income could be taxed on a corporate and pass-through level. But to maintain this status, the Internal Revenue Service rules actually deter investors and lenders from seeking a significant modification on the loan. "These penalties can be up to 100% of any gain that the REMIC receives from modifying the loan," COP said. In September 2009, the IRS expanded the types of modifications REMICs could undertake, but investors are still wary and unwilling because of the vague language and the fact that the pooling and servicing agreements were written under previous rules. COP called for a clarification of the rules to promote modification, and said easing taxes is vital. "Without such action, the CRE market will likely continue at its sluggish pace," COP panelist J. Mark McWatters said in hearing held Friday. McWatters even floated out the idea of a government-sponsored real estate investment trust that would infuse taxpayer and private dollars to buy up these troubled loans from the banks. But when asked, Patrick Parkinson, Federal Reserve director of banking supervision and regulation, said he had never heard of such a proposal and questioned the mechanics of such a move. Parkinson said he would rather see government continue to support the overall economy. David Wilson, the deputy comptroller for credit and market risk at the Office of the Comptroller of the Currency, said while the market waits for a solution, the casualties are still mounting from commercial real estate problems. "There are still a lot of these problem loans at these smaller banks that probably won't make it," Wilson said. Write to Jon Prior. Follow him on Twitter: @JonAPrior