Loss realization refers to the recognition of a loss for tax purposes when an asset has decreased in value and is sold or disposed of. This concept is crucial in determining how losses can be deducted from taxable income, allowing taxpayers to offset gains or other income, thus reducing their overall tax liability. It connects to the idea of basis limitations and distributions, where losses may only be recognized to the extent that they do not exceed the taxpayer's adjusted basis in the asset.
congrats on reading the definition of loss realization. now let's actually learn it.