Which of the following statements is true about capital gains tax?

The statement regarding capital gains tax that reflects the correct understanding is that it can often be deferred through specific tax strategies. Capital gains tax applies to the profits obtained from the sale of assets, such as stocks or real estate, and it is indeed subject to various strategies that can defer tax liability. Examples of such strategies include utilizing retirement accounts, like 401(k)s or IRAs, where gains can grow tax-deferred until withdrawal. Another common method is the 1031 exchange, which allows real estate investors to defer capital gains tax by reinvesting gains into similar properties.

Understanding the nature of capital gains tax is crucial for managing investments and tax obligations effectively. The potential for deferral allows individuals and businesses to strategize their asset sales and is a significant aspect of tax planning that can lead to substantial financial benefits.