Federal regulations for a cost-cutting home-buying technique are stalled inside the U.S. Internal Revenue Service, effectively discouraging thousands of consumers and investors from using a law passed last December.

The home-buying technique, known as equity sharing, involves co-purchase of a dwelling by a resident occupant and a nonresident investor. The co-purchasers share the costs of the property as well as the financial advantages of ownership. The buyer who lives in the unit typically pays little or no down payment, or pays only a portion of the monthly mortgage costs.

The investor, who may be a close relative of the resident or a total stranger, receives significant tax advantages plus a share of the future sale proceeds on the house or condo.

Congress sought to encourage equity sharing last year as a way around high interest rates and high housing prices. It passed an amendment to the federal tax code allowing investors to take depreciation and other deductions on homes purchased under equity-sharing agreements.

Prior to that, the code limited write-offs so strictly that few investors even would consider such a purchase.

Parents seeking to help a son or daughter with the down payment on a first home, for example, couldn't have received any form of tax shelter on their financial contribution under the old law.

Investors wishing to help elderly or fixed-income tenants threatened by condo conversions had no tax incentives to do so under the old law. Had they contributed to a tenant's purchase costs on a condo unit -- allowing the tenant to remain for some period at current rent levels in exchange for a share of the equity -- they couldn't have written off normal depreciation deductions.

The new law changed all that -- or at least was supposed to.

Would-be users of the equity-sharing tax incentives say the IRS' failure to issue even minimal draft regulations during the past nine months has frustrated Congress' intent.

Buyers and investors still have no guidelines on how much depreciation can be taken or the way equity shares should be calculated. Buyers have no guidance from the government on how to calculate their proper share of the costs or the proper rent to be paid co-owners for use of their share of a house.

"It's ridiculous," says Stan Ellberger, president of the New Jersey-based Equity Sharing Plan Corp., a major real-estate firm in the field. "The whole legal situation now has more question marks around it in investors' minds than it did before Congress passed the law.

"It's hurting home buyers; it really is. We want to structure our equity-sharing contracts in a way that won't create problems later on with the IRS. We all want to comply with the law. But we've got nothing to go on from the IRS."

As a result, according to Ellberger, "We've got to spend thousands of dollars needlessly on legal opinions" just to assure investors and buyers that their purchase agreements are okay. But even those high-priced legal opinions from tax lawyers come with warnings that everything could be changed by forthcoming federal regulations.

Ellberger's complaints are echoed by accountants, real estate brokers and ordinary home buyers who have been waiting for months for hints from the IRS about how it views equity sharing.

The head of one building firm that's been trying since January to shake loose even a "comment" letter from the IRS on equity-sharing depreciation deductions says he's "frustrated as hell" by the lack of cooperation.

Charles Peterson, president and founder of the Atlanta-based TICKET Corp., an equity-sharing firm, has a similar problem. He concedes that the formula used in his contracts between hundreds of home buyers and investors this year -- involving about $50 million in home sales -- is not based on anything from the IRS.

Peterson, backed by private legal opinions, The Nation's Housing

Peterson, backed by private legal opinions, allocates equity shares according to the size of the down payment of the investor. If, for example, a parent contributed the $20,000 down payment required to help a daughter and son-in-law buy a $100,000 new house, Peterson's equity-sharing agreement would allocate the parent a 50 percent stake in the equity of the property.

The parent then could take depreciation and other deductions on one-half of the house.

Other real-estate firms, lawyers and accountants use other formulas. But as one Washington tax attorney admitted, "We're all flying blind, really. We can't advise clients until the IRS gets its act together. That's a pretty dumb situation to have to be in on a fairly straightforward law passed last year."

What's the story at the IRS? According to sources in the agency, the equity-sharing regulations were completely drafted early last spring. They've been"under review" but going nowhere ever since.