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Form 6198 - At-Risk Limitations

The at-risk rules place a limit on the dollar amount of any loss that a taxpayer can deduct from their business activities. This amount is generally based on the actual amount of money that the taxpayer stands to lose. Typically a loss that can be deducted by the taxpayer is limited to the actual investment that the taxpayer has made in a business plus any amounts that the taxpayer is personally liable.

When the taxpayer is not at risk of actually losing their investment, such as in the situation when loans are used to finance the business activity and the taxpayer is not personally responsible for the loan, any resulting loss from that activity would be limited to the amount that the taxpayer actually would loss.This concept is call the 'At-Risk Limitation' and the allowed amount of any loss is reported on Form 6198 which is filed with the tax return.

Generally, any loss from an activity that is subject to the at-risk rules is allowed only to the extent of the total amount the taxpayer has at risk in the activity at the end of the tax year. A taxpayer is considered at-risk in an activity to the extent of cash and the adjusted basis of other property the taxpayer contributed to the activity and certain amounts borrowed for use in the activity that the taxpayer is personally liable.

Form 6198 - At-Risk Limitations is used to determine the profit (loss) from an at-risk activity for the current year.  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 and they are not at-risk invested for some or all of the loss.

Form 6198 is only generated in the tax program when the taxpayer is reporting a loss and has answered 'NO' to the question that their investment in the business is at-risk.

To enter At-Risk Limitation In the tax program coming from a Schedule C, from the Main Menu of the Tax Return (Form 1040), select:

  • Income Menu
  • Business Income/Loss (Sch C, C-EZ, 1099MISC)
  • Select 'New' or double-click the entry you wish to 'Edit'.  Select 'Pull' if you prepared the return using the software in the previous year and wish to pull the data forward.
  • Select Answer Schedule C Questions
  • Is All of Your Investment in This Bus at Risk? - Change to 'NO'

When you exit the Schedule C Edit Menu, the Form 6198 - At-Risk Limitations Menu will generate in the program if the Schedule C contains a net loss. Enter in the required information to generate Form 6198.

 To enter At-Risk Limitation In the tax program coming from a rental property being reported on a Schedule E, from the Main Menu of the Tax Return (Form 1040), select:

  • Income Menu
  • Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
  • Rents and Royalties
  • Select 'New' or double-click the entry you wish to 'Edit'.  Select 'Pull' if you prepared the return using the software in the previous year and wish to pull the data forward.
  • Supplemental Income Questions
  • Is All of Your Investment in this Business At Risk? - Change to 'NO'
When you exit the Rents & Royalties Edit Menu, the Form 6198 - At-Risk Limitations Menu will generate in the program if the rental property contains a net loss.  Enter in the required information to generate Form 6198. Losses entered on rental property must first be considered At-Risk before it will be considered as an allowed or unallowed loss under the Passive Activity Limitations on Form 8582.
To enter At-Risk Limitation In the tax program coming from a farm activities being reported on Schedule F, from the Main Menu of the Tax Return (Form 1040), select:
  • Income Menu
  • Farm Income (Sch F)
  • Select 'New' or double-click the entry you wish to 'Edit'.  Select 'Pull' if you prepared the return using the software in the previous year and wish to pull the data forward.
  • Answer Schedule F Questions
  • Is All of Your Investment in this Business At Risk? - Change to 'NO'
When you exit the Schedule F Edit Menu, the Form 6198 - At-Risk Limitations Menu will generate in the program if the farm has a loss.  Enter in the required information to generate Form 6198.
To enter At-Risk Limitation In the tax program coming from a pass-through entity (partnership or S-Corporation) being reported on a Schedule K-1. from the Main Menu of the Tax Return (Form 1040), select:
  • Income Menu
  • Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
  • K-1 Input
  • Select 'New' or double-click the entry you wish to 'Edit'.  Select 'Pull' if you prepared the return using the software in the previous year and wish to pull the data forward. Is All Investment At-Risk? - Change to 'NO'
When you exit the K-1 Entry Menu, the Form 6198 - At-Risk Limitations Menu will generate in the program if the entity has a loss. Enter in the required information to generate Form 6198.
NOTE: This is a guide on entering Form 6198 into the TaxSlayer Pro program.  This is not intended as tax advice. For additional information refer to the Additional Resources below.