Real estate owners and buyers who want to save taxes or finance property creatively have just gotten a big helping hand from Congress.

In a little-noticed bill passed by both the House and Senate on the day they adjourned for the election recess, Congress streamlined the U.S. tax code's rules on "installment sales."

Used for decades by large-scale real estate investors and landowners to limit the capital gains taxes they pay on their profits from property sales, the installment technique has boomed in popularity in the past three years among small-scale investors and individual homeowners.

The installment concept is simple: Rather than taking all of one's profits on real estate immediately upon sale, a seller stretches out receipt of the profits over a period of time. This stretch-out of gain postpones -- and often reduces -- the effective federal tax burden that the seller would have had to bear if he or she took the profits in a lump sum.

It also enables sellers and buyers to work out mutually advantageous "creative financing" deals, such as wraparound loans, land contracts, seller provision of first and second mortgages, and many others. All these techniques involve deferrals of profits by real-estate sellers and have become increasingly important as interest rates, real-estate prices and family tax brackets have soared with inflation.

A husband and wife who owned a rental duplex in a metropolitan market, for example, could easily face a $10,000 to $12,000 tax bite on the $50,000 sale profit. That capital gains tax would be cash out of pocket for the couple -- and the lump-sum transaction might even have the unintended side effect of pushing up their regular tax bracket.

By arranging an installment purchase of their house, however, the same couple could save $8,000 to $9,000 in hard cash in the year of the sale, earn substantial interest on their deferred gain (in the form of a loan to the property buyer), and could even time the receipt of portions of their profits to years in which their regular income tax bracket would be lowest -- simultaneously lowering their capital gains tax bracket.

They'd have to pay deferred capital gains taxes to the federal government throughout the transaction. But in a typical, well-planned installment sale, the couple would end up with more in their pockets than otherwise.

The attractions of the installment technique have been powerful, but so have some of its disincentives. Until Congress streamlined the federal tax rules with its new bill, installment sales "could be very, very tricky," in the words of New York tax attorney Gerald Robinson.

The old law required that no more than 30 percent of the price of property could be received in the year of actual sale. If a seller received what the Internal Revenue Service calculated to be more than 30 percent, he or she immediately owed the full tax on the full profit.

Many sellers tried to protect themselves by asking buyers for 29 percent down payments in the first year. But IRS regulations contained so many technical "traps for the unwary," Robinson noted, that "an awful lot of people found that 29 percent really amounted to 32 or 34 percent by IRS calculations," including principal and interest amortization and other forms of compensation from buyer to seller.

The new law passed by Congress eliminates the 30 percent rule. For example, a seller can now take 40 percent of a payment in the first year and spread out the balance over five years, at an interest rate negotiated with the buyer.

The IRS won't be able to demand anything more than the proportional payment received in a given year (say 40 percent one year, 10 percent for each of the next four years, followed by a final payment of 20 percent). This gives sellers and buyers far more flexibility in custom-tailoring their financing arrangements to their specific needs.

The new law also eliminates the former requirement that installment payments be received by the seller in at least two different tax years. A delayed, one-time lump-sum payment from a buyer to a seller -- which might be proposed by a purchaser of property in exchange for an unusually high price to the seller -- automatically will be treated as an installment sale, with no immediate tax payment due from the seller.

There are other changes made to the tax code by the new bill. All aspects of an installment transaction should be discussed with an accountant or tax attorney before putting together a real estate sale under the revised law.