If you earned considerable income from real estate during theboom years, you also paid significant taxes during those years.Selling property now at a loss creates an opportunity to recoupsome of the taxes paid in prior years. This is the silver lining inthe current market gloom, and may present opportunity for someowners: Losses could mean tax refunds.

Real estate held by developers is treated as inventory. Adeveloper recognizes ordinary income or losses (rather than capitalgains or losses) when it sells its real property. Real estate heldas rental property or used in a trade or business by non-developersgenerates ordinary losses (called Section 1231 losses) or capitalgains when sold.

Ordinary losses generated by sales of real property are combinedwith other income and losses of a regular corporation to determinewhether the corporation has an overall "net operating loss" for thetax year. Net operating losses may be carried back to prior yearsto decrease the tax in those prior and more profitable years. Thedecrease in tax is refunded to the taxpayer.