@pcunniff i actually ran into the question that I think you were referring to while reviewing last night. Although it doesn't specifically talk about the mom and pop rule/RE Agents in the actual question it mentions RE agents in the explanation and its considered an investment if they participate in it. However, this question and your investment explanation is related to the Investment interest Expense in which one can itemize.
On R1-46: Income derived from a rental property (both residential and nonresidential) is reported on Schedule E. Rental losses are considered passive and will be deductible only to the extent of passive income. There are exceptions; which is if you materially participated you can deduct up to $25k or RE Agent can deduct against ordinary income.
On R2-24 mentions the definition you are referring to, stating investment interest deduction for individuals is limited to the NET taxable investment income. Therefore, this is mentioning the interest you've had to pay can be expenses up to the NET taxable investment income. The definition is simply so you can know how much interest expense you can itemize, it doesn't take away from where you should be reporting the income/loss from the investment.
I would just do a refresher on the itemized deductions and passive losses to read the questions and see how these rules apply.
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