Oregon Real Estate Practice Test

How does tax deferral benefit property owners?

1. It allows for immediate tax deductions.

2. It enables them to reduce property value.

3. It allows them to postpone tax payments.

4. It provides a tax exemption.

The correct answer is: It allows them to postpone tax payments.

Tax deferral is a significant benefit for property owners as it allows them to postpone tax payments. This can be particularly advantageous because it enables individuals or investors to retain more of their capital for longer periods, which can then be reinvested into the property or other ventures. By deferring taxes, property owners can enhance their cash flow and potentially increase their overall returns on investment. For example, if a property generates income, the owner can reinvest that income rather than using it to pay taxes immediately. This postponement can lead to significant financial advantages over time, allowing property owners to maximize the appreciation of their assets without the immediate tax burden. The other options do not accurately describe the essence of tax deferral in the context of real estate. Immediate tax deductions pertain to current expense reductions, reducing property value does not reflect any tax benefit, and tax exemptions refer to completely avoiding tax on certain properties, which is different from deferring a payment. Therefore, the ability to postpone tax payments is the key advantage that tax deferral offers property owners.