As an investment real estate broker for more than 30 years, I have helped many clients acquire, exchange or liquidate investment property. Real estate investment has long been recognized as a steady and reliable path to the accumulation of wealth.

While most investors are reasonably clear on the benefits of owning income property, I am impressed with the rarity of investors who have developed an "end-game" strategy that plans ahead for the timely disposition of assets under the most favorable circumstances.

Typical investors have repositioned their assets over the years by exchanging into larger properties, bringing the old basis into the new property, until the depreciation benefits have evaporated. Cash flows are now exposed to a bigger tax bite, and refinancing has placed the mortgage over the basis, creating a taxable event for any subsequent exchanges. The investor has hit a cul-de-sac on the road to equity growth.

Volumes have been written on how to buy and manage income property but effective options for the investor who wants to cash out are scarce. The classic strategy of tax avoidance through a stepped-up basis on death is not as attractive to baby boomers who are living and staying active longer. Also, the Tax Relief Reconciliation Act of 2001 will phase out the stepped-up basis by the year 2010 as the estate tax is gradually phased out.

So, what are the options available to the real estate investor who wants to cash out of real estate with the greatest amount of after tax dollars under direct control? Here are a few options:

* Tax-friendly entities. First and foremost, work with a professional in both tax law and accounting to determine your best options for holding title to your property. Some options include family trust, S corporation, C corporation, limited liability companies, limited partnerships, REITs, specialized trusts and family foundations. Choosing the right form of holding title delivers protection of equity, tax savings and flexibility in planning future benefits.

* 1031 exchange. This tool is the most popular form of putting off the tax man for a future day. While most 1031 exchanges are designed to defer all the gain, the exchange is also useful in planning a graceful exit from ownership. A partial exchange will result in tax savings for the qualifying portion. The exchange of a larger property for several smaller properties allows the investor to spread his tax liability over several tax years. Some things to watch for: Take title to the replacement property the same way you held title on the relinquished property (the time to try out the new entities is before or after the exchange). If the relinquished property closed in the last tax year, do not file a return. Extend until closing on the replacement property. Be aware of a "mortgage-over-basis" tax trigger.

* Installment sale. Under Section 453(a), when the disposition of a property in which at least one payment is to be received after the close of the taxable year in which the sale occurs, the seller will recognize gain or profit as he actually receives the proceeds, over time. Typically, the cash down payment would be taxable, net of closing costs, and the remaining installments would be taxed as they are received. This is an effective tax management program with the added benefit of providing interest income for the remaining balance of the contract. Due on sale and prepayment provisions need to be addressed in advance, as the full amount of the remaining gain would be paid in the event the loan is paid off early.

* All inclusive trust deed. This tool can be particularly beneficial with an installment sale in cases where the existing junior loan(s) carry a lower rate of interest than the negotiated rate on the AITD. The seller then has the arbitrage on the collected rate on the full amount of the combined loans and the lower rate paid on the underlying loans. Existing lenders can be an obstacle.

* Lease option. Under the lease option, the title to the property remains with the taxpayer and a contract to sell is contained in an option. The owner of the option leases the property with the lease payment equating to the amount of interest on an installment sale. The lease deposit would equate to the down payment under an installment sale. The expected benefits to the buyer and seller are that the property taxes would not change; capital gain has not been triggered; the buyer has full use of the property, its management and cash flow; the seller has lease income, no management and can plan ahead for the most beneficial year for the exercise of the option. The IRS, lenders and the county tax collector will all be likely to challenge this device as a hidden sale, so professional counsel is a must.

* Exchange for NNN and sell cash flows. Complete a 1031 exchange into a quality net leased investment, then borrow against the cash flows at a reasonable discount. The benefits are tax-free cash today.

* Family limited partnerships. The formation of a family limited partnership provides a convenient way of passing on equity interests to family members at bargain basement prices. Control of the property remains with the grantor or general partner and the limited partnership interests are discounted up to 40 percent due to the illiquidity.

* Conversion of old partnerships into a tax-friendly entity. This fits in the "don't try this at home!" category. Several of my clients have worked with a CPA with a national accounting firm who specializes in partnership taxation; they have been very pleased with the results.

* Reverse exchange. This is another planning tool that allows the replacement property to be acquired prior to closing the relinquished property. Recent tax rulings have blessed this strategy, but it is best to work with an experienced accommodator.

* Exchange with tenants in common. Often, this will be an exchange in which management-weary owners acquire a tenancy in common in a larger property with professional management. This is also a strategy in which related entities (i.e. a family trust and a corporation) can each acquire a portion of the equity in a replacement property, limiting the percentage of ownership in the trust subject to the old basis and "bookmarking" with the corporation a portion of the equity for future exchanges. Related party rules would apply in this scenario, requiring that the related entity must not dispose of the property for 24 months.

* UPREIT. This is an exchange in which equity in a property or portfolio of properties is relinquished for shares in a REIT. This usually applies to larger and newer properties that would fit a REIT acquisition profile. Limitations apply to the sale of the newly acquired stock.

* Corporate conversion to REIT. In June 2001, the IRS issued Revenue Ruling 2001-29 in which corporate-owned real estate can be transferred tax free to a corporate shareholder's stand-alone, business subsidiary. The subsidiary can then elect to be treated as a real estate investment trust and lease the property back to the corporation in an arms-length transaction.

* Off-shore trusts. Consult a very specialized tax attorney or CPA to navigate these balmy safe havens.

Wise is President and CEO of Wise Investment Properties Inc. in Encinitas. He has specialized in investment real estate since 1971 and has closed more than $200 million in San Diego investment property in recent years.