The realization requirement gives an incentive to own assets that have increased in value and to sell assets whose value has decreased.

Question

Quizplus · Accepted Answer

The realization requirement refers to the concept that gains on an asset are not taxed until the asset is sold, or "realized." This gives an incentive for individuals to hold onto assets that have increased in value, as they can continue to defer taxes on those gains. On the other hand, selling assets whose value has decreased allows individuals to "realize" losses and potentially offset gains on other assets. Therefore, the realization requirement does provide an incentive to own assets that have increased in value and sell assets whose value has decreased.

The Realization Requirement Gives an Incentive to Own Assets That