Form 6198 (At-Risk Limitations): A Guide for Taxpayers
Form 6198, titled "At-Risk Limitations," is used by individuals, estates, trusts, and certain closely held C corporations to determine the deductible loss from an at-risk activity. The form helps calculate the profit or loss from an at-risk activity, the amount at risk, and the deductible loss for the current tax year.
Who Must File Form 6198?
Individuals (including those filing Schedules C, E, and F with Form 1040 or 1040-SR), estates, trusts, and certain closely held C corporations described in section 465(a)(1)(B) must file Form 6198 if they had amounts not at risk invested in an at-risk activity that incurred a loss during the tax year.
Purpose of Form 6198
Form 6198 is used to figure:
- The profit (loss) from an at-risk activity for the current year (Part I).
- The amount at risk for the current year (Part II or Part III).
- The deductible loss for the current year (Part IV).
Key Rules and Guidelines
- Current Year Profit: If line 5 shows a current year profit, you may not need to complete the rest of the form. Report all income, gains, deductions, and losses on lines 1 through 4 on the appropriate forms and schedules, and attach Form 6198 to your tax return.
- Current Year Loss: If line 5 shows a current year loss, your deduction may be limited to the income or gains included on lines 1, 2, and 3. You must separate income, gains, deductions, and losses to determine allowable deductions.
- Amounts Not at Risk: These include nonrecourse financing and loans guaranteed by federal, state, or local governments. Such amounts are not considered at risk under section 465.
- Carryover of Losses: If your deductible loss is limited, the excess loss is carried over to future years and may be deductible when you have sufficient income or gains from the same activity.
How to Complete Form 6198
Part I of Form 6198 calculates the current year profit or loss. Part II or Part III determines the amount at risk. Part IV calculates the deductible loss. If you completed Part III for the prior tax year, you may skip certain lines and use prior year data.
For taxpayers who are not partners or S corporation shareholders, prior year losses that were not deductible due to at-risk rules should be included on Schedule D (Form 1040 or 1040-SR), Form 4797, or other applicable forms. Partners and S corporation shareholders should include current year gains and losses and prior year losses attributable to the activity on lines 2a, 2b, and 2c.
Software Assistance
When filing your federal tax return using OLT (Online Taxes) software, you can add Form 6198 by navigating to the 'Federal' section, selecting 'Rental, Royalty, Partnership, S Corp, Trust' under Income, and then choosing 'Start' or 'Edit' for 'Rental Real Estate and Royalties Income/Loss - Schedule E'. After completing Schedule E and Form 8582, you will be prompted to complete Form 6198.
Source:
Form 6198 Instructions
Disclaimer: Always verify information with official Federal or State Department of Revenue Forms and Instructions.