Recent federal tax law changes, favorable market conditions and lower demand for rental housing have touched off a rush to sell investment homes in some sections of the Washington area.

The increase has been particularly noticeable in outlying areas like Gaithersburg and Germantown in Montgomery County, Dale City and Woodbridge in Prince William County and several spots in Prince George's County.

Such areas have tended to attract investors lured by house prices that are lower than in areas closer to the District of Columbia, in part because of their distance from the District and partly because of substantial new construction in outlying communities.

Investors have been less willing to sell properties closer to the city, according to real estate brokers, because these homes command higher rents and have appreciated in value much faster than those in outlying areas.

More investor-owned town houses and condominiums have been put on the market than detached single-family homes, which historically have accounted for only a small portion of the investment market because they cost more and investors can charge only marginally higher rents than for attached housing.

Cindy Rosen, a real estate broker for Merrill Lynch in Gaithersburg, said that investor-owned town houses there and in Germantown account for as much as 40 percent of the properties she shows to buyers, up from 20 percent a year ago.

"Everything I have been showing lately has been tenant occupied. A lot of investors are liquidating," she said.

Rosen isn't the only one to notice an increase in such offerings. David Fay, a real estate agent for Mount Vernon Realty in Rockville, estimated that 25 percent of the houses he has shown are owned by investors, whereas last year such properties accounted for only about 10 percent.

"More {investors} are selling than buying," said Vi Turner, an agent specializing in investment properties for Long & Foster in Dale City. "It's not a massive increase, but it is a noticeable trend," she said.

The increase is a more localized repeat of one that took place last fall as many investors throughout the Washington area rushed to sell properties before new tax laws took effect Jan. 1. The tax law changes eliminated preferential treatment of profits made from sales, or capital gains. In addition, the new passive activity rules severely limited the amount of losses from rental property that investors could use to shield other earned or "active income."

The new tax law also lengthened the time over which investors could depreciate such property and limited mortgage interest deductions to two houses. Investors usually counted on such tax breaks to make rental property -- typically seen as a money loser -- a profitable investment, Fay said.

Last fall's sales spurt subsided, but did not evaporate. Now, Fay said, generally rising property values and a diminished supply of houses for sale have prompted an increasing number of investors who didn't sell before to cash in and reinvest their money elsewhere, he said.

"There's a combination of reasons" for the recent sales rush, Rosen said. "One, the tax law isn't beneficial to investors anymore and also the money can be invested elsewhere for more returns. The market is very inflated and they can get higher prices," she said. Rosen pointed out that rents from investment homes typically fall short of covering the monthly maintenance and mortgage costs by $150 to $200 a month.

Charles Wilson, an investor with homes throughout the Washington area, said he is considering selling a couple of his properties to "get rid of passive losses." He said the new tax laws are steering "everyone toward economical properties. They're looking for positive cash flow."

Rufus Lusk III, the head of his family's real estate information service, said that prices throughout the area have risen 15 to 20 percent over the past year. In addition, the supply of houses on the market has shrunk 15 to 20 percent over last year, he said.

That, he said, "has been the carrot" for investors who bought mainly in areas where increased competition from new construction has suppressed prices. Now even prices there have been rising and "investors are deciding to get out while they can," said Helen Norris, an agent with Century 21 Hayes Realty in Gaithersburg.

Eser Karaoglan, a nuclear physicist in Houston who is selling a rental home in Springfield, said: "It seems to be a seller's market. Now is the time to sell if you're going to sell a house. If you wait, you may not have the demand that you have now."

Some investors are "floating" their properties on the market to see if they sell, according to one investor who requested anonymity. "If they don't sell, then investors can keep them as rentals," she said.

A lackluster rental market also is prompting some investors to sell. Some agents said there has been less demand for rental units. Lower interest rates in many cases have made owning a home more affordable than renting. "It seems like quite a few {investment} properties I'm showing are vacant," Fay said.

That, along with the loss of tax breaks to offset losses and "the headache of managing property," has pushed some investors to decide "it isn't worth holding onto the property," Turner said.

But the sales spurt isn't taking place throughout the Washington area. Scott Avery, an Arlington broker, said he hasn't seen many investors selling properties there.

"We tried drumming up business among absentee landlords, but our agents haven't had much response," he said. Investment homes in those areas are typically rented quickly because "people like to live closer into the city," Avery said. Such properties also tend to appreciate more than those in outlying areas like Gaithersburg or Dale City, he said.

Consequently, Avery said, despite the loss of some tax breaks, investment properties there are worth holding onto because they produce higher rates of returns than other investments.

Despite the sales push in some parts of the area, Larry Doff, a real estate broker with Real Estate Professionals Realty Inc. in Annandale, said he doesn't understand why investors want to sell.

"The tax law changes have not made much difference for most investment homes," he said. Most investors don't have to worry about passive-active tax rules because they earn less than $100,000 a year, the point at which the passive-active rules start limiting to $25,000 the losses from rental property that investors can deduct on their tax returns. After $100,000, investors lose $1 in deductions for every $2 of earned income. Those who earn $150,000 can't deduct any losses.

A substantial number of people also don't have to worry about losing mortgage interest deductions for rental properties because they typically own only two houses, their own and an investment property, Doff said. The revised tax code still allows owners to deduct the mortgage interest for a second home.

Doff said the new tax rules, if anything, discourage investors from selling because capital gains are now taxed at higher rates than before.