Fillable Form 6198

What is Form 6198?

Form 6198, At-Risk Limitations, is an Internal Revenue Service (IRS) form used by taxpayers to determine the profit (or loss) from an at-risk activity for the current year.

IRS tax form 6198 should be filed when a taxpayer has a loss in a business activity reported on a Schedule C, Schedule E, or Schedule F (Form 1040, U.S. Individual Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors) and they are not at-risk invested for some or all of the loss.

Use IRS Form 6198 to figure out:

• The profit (or loss) from an at-risk activity for the current year.
• The amount at risk for the current year.
• The deductible loss for the current year.

The at-risk limitation rules apply to losses from the following activities carried on as a trade or business or for the production of income.

• Holding, producing, or distributing motion picture films or videotapes.
• Farming, as defined in section 464(e)(1).
• Leasing any section 1245 property, as defined in section 1245(a)(3).
• Exploring for or exploiting oil and gas resources.
• Exploring for or exploiting geothermal deposits, as defined in section 613(e)(2).

You are not considered at risk for any of the following:

• Nonrecourse loans used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity (unless the nonrecourse loan is secured by your own property that is not used in the activity). However, you are considered at risk for qualified nonrecourse financing secured by real property used in the activity of holding real property (other than mineral property).
• Cash, property, or borrowed amounts used in the activity that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangements (excluding casualty insurance and insurance against tort liability).
• Amounts borrowed for use in the activity from a person who has an interest in the activity other than as a creditor or who is related under section 465(b)(3)(C) to a person (except you) having such an interest. However, this does not apply to:
  • Amounts borrowed by a corporation from a person whose only interest in the activity is as a shareholder of the corporation; or
  • Amounts borrowed after May 3, 2004, and secured by real property used in the activity of holding real property (other than mineral property) that, if nonrecourse, would be qualified nonrecourse financing.
• Any cash or property contributed to the activity or to your interest in the activity that is:
  • Financed through nonrecourse indebtedness or protected against loss through a guarantee, stop-loss agreement, or other similar arrangements; or
  • Borrowed from a person who has an interest in the activity other than as a creditor or who is related under section 465(b)(3)(C) to a person (except you) having such an interest. However, this does not apply to:
    • Amounts borrowed by a corporation from a person whose only interest in the activity is as a shareholder of the corporation; or
    • Amounts borrowed after May 3, 2004, and secured by real property used in the activity of holding real property (other than mineral property) that, if nonrecourse, would be qualified nonrecourse financing.

File Form 6198 if during the tax year you, a partnership in which you were a partner, or an S corporation in which you were a shareholder had any amounts not at risk invested in an at-risk activity that incurred a loss.

How to fill out Form 6198?

Filling out Form 6198 is quick and simple. You can download and print a PDF copy of Form 6198 from the Internal Revenue Service (IRS) website which you can manually complete. But for your convenience, you can also fill out Form 6198 electronically on PDFRun. By following the instructions below, you can accomplish the form in minutes.

If you are engaged in more than one at-risk activity or in both at-risk activities and not-at-risk activities, you must allocate income, gains, losses, and deductions to each activity.

Partnerships and S corporations must give their partners and shareholders a separate statement of income, expenses, and deductions for each at-risk and not-at-risk activity.

When filling in Parts I, II, and III, enter only amounts that relate to the activity included on this form. Use accepted tax accounting methods to figure out the amounts you must enter.

If you are a partner or an S corporation shareholder, enter any items for the activity that are from your investment in the activity or were passed through to you on Schedule K-1 (Form 1065, Partner’s Share of Income, Deductions, Credits, etc., or Form 1120-S, Shareholder’s Share of Income, Deductions, Credits, etc.) or a similar statement.

Name(s) shown on return

Enter the name(s) shown on your return.

Identifying number

Enter your identifying number.

Description of activity

Enter the description of the activity.

If applicable, enter the name and the identifying number of the partnership or S corporation.

Part I – Current Year Profit (Loss) From the Activity, Including Prior Year Nondeductible Amounts

For taxpayers other than partners or S corporation shareholders, if you have losses or deductions from an earlier tax year that you could not deduct because of the at-risk rules, include those amounts on the appropriate form or schedule of your current year tax return before starting Part I.

For partners and S corporation shareholders, if you have a loss or a deduction from an earlier tax year that you could not deduct because of the at-risk rules, these losses and deductions must be included in the current year amounts you will enter in Part I.

For closely held corporations, you must apply the limitation on the deduction for interest expense under section 163(j) before applying the at-risk limitations.

Line 1

For taxpayers other than partners or S corporation shareholders, enter your ordinary income or loss from the at-risk activity without regard to the at-risk limitations. This is the amount you get when you subtract your total deductions (including prior year deductions that were not allowed because of the at-risk rules) from your total income from the activity for the current year.

Do not include the capital or ordinary gains and losses from the sale or other disposition of assets used in the activity or of an interest in the activity. These amounts, casualty or theft gains and losses, and investment interest expense are entered on the succeeding lines.

For partners and S corporation shareholders, enter the amount from box 1 of your current year Schedule K-1 (Form 1065, Partner’s Share of Income, Deductions, Credits, etc., or Form 1120-S, Shareholder’s Share of Income, Deductions, Credits, etc.) plus any prior year ordinary loss that you could not deduct because of the at-risk rule.

Lines 2a, 2b, and 2c

Combine long- and short-term capital gains and losses and ordinary gains and losses from the sale or other disposition of assets used in the activity or of your interest in the activity. Enter gains and losses without regard to the at-risk limitations, the limitation on capital losses, or the passive activity loss limitations. If more than one item is included on a line, attach a statement describing each item.

Do not include amounts on lines 2a and 2b that are included on line 2c. Enter the form number or schedule letter to the left of the entry space for line 2c.

For taxpayers other than partners or S corporation shareholders, include on your current year Schedule D (Form 1040, U.S. Individual Tax Return or 1040-SR, U.S. Tax Return on Seniors), Form 4797, Sales of Business Property, or other forms and schedules any prior year losses that you could not deduct because of the at-risk rules.

For partners and S corporation shareholders, enter on lines 2a, 2b, and 2c your current year gains and losses and prior year losses attributable to the activity that you could not deduct because of the at-risk rules.

Line 3

If you were a partner or S corporation shareholder, enter the other income and gains from Schedule K-1 (Form 1065, Partner’s Share of Income, Deductions, Credits, etc., or Form 1120-S, Shareholder’s Share of Income, Deductions, Credits, etc.) that you did not include on lines 1 through 2c.

Line 4

If you were a partner or S corporation shareholder, enter the other deductions and losses from Schedule K-1 that you did not include on lines 1 through 2c. If you have investment interest expenses from your at-risk activity, first you must complete Form 4952, Investment Interest Expense Deduction, to figure out your allowable investment interest deduction.

If you have investment interest expense from other activities on Form 4952, Investment Interest Expense Deduction, determine the allowable investment interest deduction attributable to the at-risk activity included on line 8 of Form 4952, and enter that amount here. You must reduce the allowable investment interest deduction on Form 4952 by the amount you carry to Form 6198. If you filed Form 6198 for the prior tax year, enter on line 4 of your current year Form 6198 any investment interest expense from the prior tax year that was limited because of the at-risk rules.

Line 5

Enter the sum of lines 1 through 4. If the amount shows a current year’s profit, you may not have to complete the rest of this form. Report all of the income, gains, deductions, and losses shown on lines 1 through 4 on the forms and schedules normally used, and attach them to your tax return. Also, attach Form 6198 and keep a copy for your records.

If your current year’s profit is from a passive activity and you have a loss from any other passive activity, see the Instructions for Form 8582, Passive Activity Loss Limitations, or the Instructions for Form 8810, Corporate Passive Activity Loss and Credit Limitations, whichever applies.

If line 5 shows a current year loss, your loss may be limited to the income or gains, if any, included on lines 1, 2, and 3. Separate the items of income, gains, deductions, and losses on lines 1 through 4. The income and gains are fully reportable on your tax return. The deductions and losses are allowable (subject to any other limitation such as the passive activity rules) to the extent of the income and gains. To determine the allowable portion of each deduction or loss, divide each deduction or loss from the activity by the total loss from the activity on line 5. Then, multiply the total income and gains by this fraction.

Complete the rest of the form to see how much, if any, of the excess loss can be deducted.

Part II – Simplified Computation of Amount at Risk

Part II is a simplified method of figuring your amount at risk. It can be used only if you know your adjusted basis in the activity or in your interest in the partnership’s or S corporation’s at-risk activity.

Line 6

For sole proprietors, filers of Schedules C and F (Form 1040, U.S. Individual Tax Return or 1040-SR, U.S. Tax Return for Seniors) must not reduce the amount on this line by any liabilities. See Pub. 551, Basis of Assets, for rules on adjusted basis.

For partners, to figure the adjusted basis, see Pub. 541, Partnerships.

For S corporation shareholders, to figure the adjusted basis, see the Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation.

Line 7

Do not include the current year’s income or gains shown on lines 1 through 3.

Include changes during the current tax year in amounts that increase your amount at risk, such as the following:

• Net fair market value (FMV) of property you own (not used in the activity) that secures nonrecourse loans used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity. Enter the nonrecourse loans on line 9 (if included on line 6). Generally, the net FMV is determined when the property is pledged as security for the loan.

• Cash and the adjusted basis of other property (determined at the time of the contribution) contributed to the activity during the tax year.
• Loans used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity for which you are personally liable, and qualified nonrecourse financing.
• Percentage depletion for this year deducted in excess of the adjusted basis of depletable property for the activity.

Line 8

Enter the sum of lines 6 and 7.

Line 9

Do not include the current year deductions or losses shown on lines 1 through 4.

Include changes during the current tax year in amounts that decrease your amount at risk, such as the following:

• Nonrecourse loans (including recourse loans changed to nonrecourse loans) other than qualified nonrecourse financing used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity. Only amounts included on line 6 can be entered on line 9.
• Cash, property, or borrowed amounts protected against loss by a guarantee, stop-loss agreement, or other similar arrangements. Enter this amount only if it was included on line 6. Do not include items covered by casualty insurance or insurance against tort liability.
• Amounts borrowed from a person who has an interest in the activity other than as a creditor or who is related under section 465(b)(3)(C) to a person (except you) having such an interest. This does not apply to (a) amounts borrowed by a corporation from a person whose only interest in the activity is as a shareholder of the corporation, or (b) amounts borrowed after May 3, 2004, and secured by real property used in the activity of holding real property (other than mineral property) that, if nonrecourse, would be qualified nonrecourse financing. Enter these amounts only if they were included on line 6.
• Withdrawals and distributions during the tax year — both cash and the adjusted basis of noncash items (less nonrecourse liabilities to which the noncash items are subject) — including assets used in the activity to repay certain debts.
• Nonrecourse liabilities included on line 6 of property you contributed to the activity.

Line 10a

Enter the difference of line 9 from line 8.

Line 10b

If the amount on this line is smaller than your overall loss from the activity (line 5), you may want to complete Part III to see if Part III gives you a larger amount at risk.

If the amount on line 10b is zero, you may be subject to the recapture rules.

Part III – Detailed Computation of Amount at Risk

If you completed Part III of Form 6198 for this activity for the prior tax year, skip lines 11 through 14. Then, see the instructions for lines 15 and 16, and the instructions for line 18, later, to determine the amounts to enter on those lines.

If the activity began on or after one of the effective dates shown below and you did not complete Part III of Form 6198 for this activity for the prior tax year, skip lines 11 through 14. Enter -0- on line 15 and complete the rest of Part III.

Line 11

For taxpayers other than partners or S corporation shareholders, use the Line 11 Worksheet (see instructions for Form 6198) and its instructions to figure your investment in the activity at the effective date. Enter all amounts as of the effective date.

For partners and S corporation shareholders, enter the basis of your investment in the partnership or S corporation at the effective date. If the partnership or S corporation is engaged in both at-risk and not-at-risk activities, allocate your investment between the at-risk and not-at-risk activities. Then, enter the part that is allocable to the at-risk activity.

Line 12

Enter your share of amounts such as the following:

• Net FMV of your own property (not used in the activity) that secures nonrecourse loans used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity that will be included on line 14. Generally, the net FMV is determined when the property is pledged as security for a loan. Do not enter the net FMV if (a) the nonrecourse loan was from a person who has an interest in the activity other than as a creditor or who is related under section 465(b)(3)(C) to a person (except you) having such an interest, and (b) the activity is described in (1) through (5) under At-Risk Activities. However, (a) does not apply to amounts borrowed by a corporation from a person whose only interest in the activity is as a shareholder of the corporation.
• Total losses from years before the effective date for which there were equal or greater amounts not at risk at year-end. Use the Line 12 Worksheet (see instructions for Form 6198) and its instructions to figure out this amount. Make all entries on a year-by-year basis. Include amounts only for years before the effective date. Do not accumulate totals of earlier losses or nonrecourse debts.

Line 13

Enter the sum of lines 11 and 12.

Line 14

Enter your share of amounts such as the following:

• Nonrecourse loans outstanding at the effective date used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity, including recourse loans changed to nonrecourse loans. Enter this amount only if it was included on line 11.
• Cash, property, or borrowed amounts, protected against loss by a guarantee, stop-loss agreement, or other similar arrangements outstanding at the effective date. Enter this amount only if it was included on line 11. Do not include items covered by casualty insurance or insurance against tort liability.
• Amounts outstanding at the effective date borrowed from a person who has an interest in the activity other than as a creditor or who is related under section 465(b)(3)(C) to a person (except you) having such an interest. This does not apply to amounts borrowed by a corporation from a person whose only interest in the activity is as a shareholder of the corporation. Enter these amounts only if they were included on line 11.
• If you are not an S corporation shareholder, also include liens and encumbrances on property you contributed to the activity that are included on line 11. If you are an S corporation shareholder, do not include any loans that were assumed by the corporation or that were liens or encumbrances on property you contributed to the corporation if the corporation took the property subject to the debt.

Line 15

If you completed Part III of Form 6198 for the effective date, mark box a and enter the difference of line 14 from line 13. Do not enter less than zero.

If you completed Part III of Form 6198 for the prior tax year, mark box b and enter the amount from line 19b of the prior year form on this line. Do not enter the amount from line 10b of the prior year's tax form. Also, do not include on this line any amounts that are not at risk.

Line 16

If you completed Part III of Form 6198 for your prior tax year, mark box b and enter on this line any increases described below that occurred since the end of your prior tax year.

If you completed Part III of your prior year form, “since effective date” means since the end of your prior tax year. Enter your share of amounts such as the following:

• Net FMV of property you own (not used in the activity) that secures nonrecourse loans that were acquired since the effective date and were used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity. Generally, the net FMV is determined when the property is pledged as security for the loan.

• Cash and the adjusted basis of other property contributed to the activity since the effective date. Adjusted basis is the basis that would be used to figure the loss if the property was sold immediately after you contributed it to the activity.

If you are an S corporation shareholder and you contributed property to the corporation subject to a liability, including a liability you are personally required to repay, then you must reduce the total of the adjusted basis of all the property you contributed by the total of all liabilities the property was subject to. This applies whether the corporation took the property subject to, or assumed, the liabilities.

• Loans for which you are personally liable that were used to finance the activity, to acquire property used in the activity, or to acquire your interest in the activity and qualified nonrecourse financing.
• Total net income from this activity since the effective date (excess of all items of income received or accrued over the allowable deductions). Do not enter any amount less than zero. Do not include the current year's income or gains.

If you are not an S corporation shareholder, enter the total net income from the activity since the effective date, taking into account only those years the activity had net income.

If you are an S corporation shareholder, enter your total net income from the activity for profit years since the effective date. Income from the activity includes gain recognized under section 357(c) on contributions of property to the activity. Include all distributions you received from the activity as well as your share of the activity’s taxable income.

• Gain recognized on the transfer or disposition of all or part of the activity or of your interest in the activity since the effective date.
• Amounts you included in income since the effective date because your amount at risk was less than zero.
• All money from outside the activity used since the effective date to repay loans included on lines 14 and 18. If, however, you used your own assets to repay a nonrecourse debt and you included an amount in Increases, earlier, the amounts included as repayments cannot exceed the amount by which the balance of the loan at the time of repayment exceeds the net FMV of property you own (not used in the activity) that secures the debt.
• Percentage depletion deducted in excess of the adjusted basis of the depletable property for the activity since the effective date. Use the Line 16 Worksheet (see instructions for Form 6198) to figure out this amount. Be sure to include the amount for the current year.
• If you are an S corporation shareholder, enter the loans you made to your S corporation since the effective date. Do not include notes that you have given to the activity that are still outstanding.

Line 17

Enter the sum of lines 15 and 16.

Line 18

If you completed Part III of Form 6198 for your prior tax year, mark box b and enter on this line any decreases described below that occurred since the end of your prior tax year.

If you completed Part III of your prior year’s tax form, “since effective date” means since the end of your prior tax year. Enter your share of amounts such as the following:

• Cash, property, or borrowed amounts protected against loss by a guarantee, stop-loss agreement, or other similar arrangement entered into since the effective date. Do not include items covered by casualty insurance or insurance against tort liability. Enter this amount only if it was included on line 16.
• Amounts borrowed since the effective date from a person who has an interest in the activity other than as a creditor or who is related under section 465(b)(3)(C) to a person (except you) having such an interest. However, this does not apply to (a) amounts borrowed by a corporation from a person whose only interest in the activity is as a shareholder of the corporation, or (b) amounts borrowed after May 3, 2004, and secured by real property used in the activity of holding real property (other than mineral property) that, if nonrecourse, would be qualified nonrecourse financing. Enter these amounts only if they were included on line 16.
• Cash and the adjusted basis of other property withdrawn or distributed since the effective date. Adjusted basis is the basis that would be used to figure the loss if the property was sold by the activity at the time you withdrew it or it was distributed to you.

If you are an S corporation shareholder and the property is subject to debt that would be included on line 14 (or on this line except for the fact that there are liens or encumbrances on the property in the activity), reduce the basis of the distributed property by the amount of the debt.

If you are not an S corporation shareholder, reduce the adjusted basis of property withdrawn by the amount, at the time of withdrawal, of any nonrecourse liability to which the property is subject.

Do not include any money from the activity used to repay loans described in the instructions for line 14. Enter amounts that were withdrawn and recontributed. Recontributed amounts must also be included on line 16.

Partners and S corporation shareholders who recognize gain on distributions from the partnership or S corporation must include the distributions on line 18. They must also take them into account as income from the activity on line 16 unless the gain is recognized in the current year.

• Recourse loans (and qualified nonrecourse financing) changed to nonrecourse loans since the effective date.
• Total losses from this activity deducted since the effective date. Take into account only those years in which you had a net loss. Do not include current year losses or deductions. Also, do not include losses or deductions you could not deduct because of the at-risk rules.
• Nonrecourse liabilities of property you contributed to the activity since the effective date.
• Any other at-risk amounts included on line 15 that changed to amounts that are not at risk since the effective date.
• If you are an S corporation shareholder, do not include any loans that were assumed by the corporation or that were liens or encumbrances on property you contributed to the corporation since the effective date if the corporation took the property subject to the debt.

Line 19a

Enter the difference of line 18 from line 17.

Line 19b

If line 19a is more than zero, enter that amount here and go to line 20. Otherwise, enter -0-.

If the amount on line 19b is zero, you may be subject to the recapture rules.

Part IV – Deductible Loss

Line 20

Enter the larger of line 10b or line 19b.

Line 21

If the loss on line 5 is equal to or less than the amount on line 20, report the items in Part I in full on your return, subject to any other limitations such as the passive activity and capital loss limitations. Follow the instructions for your tax return.

If the loss on line 5 is more than the amount on line 20, you must limit your deductible loss to the amount on line 20, subject to any other limitations.

If the amount on line 21 is made up of only one deduction or loss item, report on your return the amount shown on line 21, subject to any other limitations. Follow the instructions for your tax return to determine where to report the amount on your return.

If the amount on line 21 is made up of more than one deduction or loss item in Part I (such as a Schedule C loss and a Schedule D loss), a portion of each such deduction or loss item is allowed (subject to other limitations) for the year. Determine this portion by multiplying the loss on line 21 by a fraction. Figure the fraction by dividing each item of deduction or loss from the activity by the total loss from the activity on line 5. The remaining portion of each deduction or loss item from the activity is disallowed and must be carried over to the next year.