There’s plenty of blame to go around for the housing boom/bust. The toxic brew of high leverage, lack of transparency, and abuse of off-balance-sheet accounting that helped fuel increasingly risky lending is at the heart of the credit crisis. But less appreciated are the tax changes that encouraged risky borrowing and speculative purchases.

Before 1997, any gain on the sale of a principal residence could be rolled over tax free to another home of equal or greater value within two years of the sale. People over 55 could take a one-time tax exemption of up to $125,000 if they had lived in their home more than three years. But when Congress passed and President Clinton signed the Taxpayer Relief Act, those restrictions were relaxed. We saw this kick in after the stock market bubble burst and investors put their money in the “real estate market.”

Another more recent tax change is also having consequences in today’s down market.

Lawmakers passed a bill to forgive tax consequences of a short sale. Before the change, if a borrower sold a home for less than the value of the mortgage in what’s known as a “short sale,” the amount of the loan that was forgiven was taxed as income. Fannie Mae Economist Doug Duncan says this change has made it easier for investors who put no money down to dump “under-performing” properties.