Final answer:
An investor may defer income taxes on a portion of the gain from selling property by opting for an instalment sale, where sales proceeds are received over time, thus spreading out the tax payments.
Step-by-step explanation:
An investor may defer federal income taxes on a portion of the gain on the sale of a property, provided all sales proceeds are not received during the year of the sale. This describes c) Instalment Sale.
In an instalment sale, the seller receives the sales proceeds over a period of years, which allows the deferment of capital gains taxes to the years in which the income is received. It is a useful strategy for sellers to manage their tax liability and align it with their cash flow, potentially reducing their overall tax rate.
For example, if an investor sells a property for $500,000 with a basis of $300,000, they will have a capital gain of $200,000. If they receive this in equal payments over 5 years, they can spread out the tax owed on the $200,000 gain instead of paying it all in the year of the sale.