Glossary of Terms

Tax Deferred 2015-11-11 08:00:00

Tax Deferred

Instance where investment earnings such as interest, dividends, or capital gains accumulate tax-free until the payment of taxes related to the investment is triggered by some taxable event in the future. Real estate investments may defer certain taxes including capital gains and depreciation recapture via a 1031 exchange. Note that tax deferral does not alleviate an investor from the tax obligations - it simply defers the timing of tax payment to a later date.

For example, a real estate investor who completes a 1031 exchange at the sale of their relinquished investment property is able to defer the taxes due until the eventual sale of the replacement property. Due to the concept of time value of money, the ability to defer taxes is generally considered an attractive characteristic of an investment.


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