Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.
Unrealized is a term used to refer to investment related items (stocks, bonds, precious metals openly traded on an exchange) profit or loss associated with a known sales price and the cost of the investment to the seller. This term should not be used for tax purposes nor in normal business operations when referring to products or marginal investments (real estate, antiques, rare items etc.).
When a product or investment is sold, the seller must realize a gain or loss from the transaction. The actual sale or transaction will trigger the gain or loss realized. In effect, the receipt of cash sets the threshold for a ‘REALIZED’ amount. Unrealized gains or losses are potential i.e. on paper transactions.