By Washington correspondent: Greg Anrig Jr.

(MONEY Magazine) – When it is enacted, the new tax law will clearly damage most existing tax shelters. But don't try to ditch your partnership before the reform storm hits. Public shelter investors, at least, may be pleasantly surprised. Tax advisers say public shelters, which are registered with the Securities and Exchange Commission, should still provide an adequate after-tax return despite the changes. Notes tax-shelter analyst William Brennan: ''If you made a sound investment in a public partnership under the current tax rules, you should still get a sizable return after the new law takes effect.'' Investors in unregistered private shelters probably won't do as well, but bailing out could be costlier than staying put. The new law is expected to let you deduct shelter losses only against income from other partnerships or other businesses that you don't personally manage. That's much stingier than current law, which permits you to use shelter write- offs to offset income from any source. The new limitation would apply immediately to all new partnerships and be phased in for existing shelters. The phase-in is expected to be no harsher than that in the Senate's tax bill, which would allow you to deduct 65% of any shelter write-offs against ordinary income in 1987, then 40% in 1988, 20% in 1989 and 10% in 1990 before excluding those deductions in 1991. But you may carry over the disallowed deductions and use them to offset partnership income in later years. Even with that transition rule, investors in most public real estate partnerships shouldn't be harmed very much. On average, tax deductions make up only 8% of the total returns that limited partners receive from these programs. Moreover, a study by the Liquidity Fund of Emeryville, Calif. shows that your return may still be appealing under tax reform. Between 1971 and 1984, which admittedly included some boom years for real estate, an investor in the 38% tax bracket received an average annual compounded return of 13.2% after taxes from public real estate programs. If the new tax law had been in effect over the same period, according to the analysis, an investor in the expected maximum tax bracket of 27% would have received a still impressive after-tax return of 9.4%. Nevertheless, public programs geared more toward producing write-offs than income in the investment's initial years would become less attractive. Say that this year you put $5,000 into a real estate shelter that promised annual deductions of $1,000 over five years. After writing off the full $1,000 for this year, you would be able to deduct only $650 for 1987, $400 for 1988, $200 for 1989 and $100 for 1990. Total write-offs over the period: $2,350 instead of the $5,000 allowed under current law. In addition, the new law would make these write-offs worth less. A taxpayer in the present top bracket of 50% would save $2,500 in taxes over the five-year period in this example. Assuming a 27% top rate under the new law, he would save only $864.50. % You may still be able to retain some, if not all, of a shelter's deductions by investing in new limited partnerships that generate taxable income instead of deductions. You could then use your existing shelter's write-offs to offset the new income partnership's cash flow. When your partnership's properties are sold, the new law's anticipated increase in the levy on long-term capital gains to 27% would reduce your after-tax return. But because the tax changes may discourage construction, many analysts forecast that rents and property values will rise in two or three years. If your partnership's properties are among the beneficiaries, your total return could be as good under the new law as it would be under the old one. Unless you are desperate for cash, don't try to sell your partnership's shares back to the sponsor or to one of the independent firms that buy partnership units. Not only will they pay you no more than 70% or less of the appraised value of your share of the properties, but you will also have to surrender any tax benefits that you may still be entitled to. The outlook is considerably bleaker for investors in private shelters that depend heavily on tax breaks to provide satisfactory returns. They usually require total investments of $25,000 or more paid in annual installments. Suppose you had agreed to put $10,000 in each of the next five years into a program that promised two dollars in write-offs for every dollar you invested. Under the proposed phase-in of the new limitation on shelter deductions, you would get write-offs amounting to only $27,000 instead of the $100,000 the shelter sponsor originally dangled in front of you. Unfortunately, investors can't sell their shares any more readily than partners in public programs can. Defaulting on future payments would be costly because you would owe taxes on the deductions you have already received. In addition, your credit rating would be tarnished, and you would almost certainly be sued for the payments. Concludes Robert Milburn, a tax partner with Laventhol & Horwath in Washington, D.C.: ''Aside from investing in income partnerships or other passive investments to salvage some deductions, investors in private shelters have no practical means of escaping from the mess they are in.''