Instructions For Form 6198 - At-Risk Limitations

Do not include amounts on

enter that amount on line 4 of

Schedule D and can deduct $3,100 of

lines 2a and 2b that are included on

Form 6198. You must reduce the

the $4,600 loss on Schedule C. Jill

line 2c. Enter the form number or

allowable investment interest

completes Part II or Part III of

schedule letter to the left of the entry

deduction on Form 4952 by the

Form 6198 and determines that only

space for line 2c. For example, if you

amount you carry to Form 6198. If

$600 of the $1,500 excess loss on

file Form 4684, Casualties and

you filed Form 6198 in 2002, include

line 5 is deductible in the current

Thefts, and carry amounts from that

on line 4 of Form 6198 any

year. She replaces the $4,600 loss

form to Form 4797, Sales of

investment interest expense from

first entered on Schedule C with

Business Property, either (a) enter

2002 that was limited because of the

$3,700 ($3,100 + $600), the total loss

the amounts attributable to the

at-risk rules.

allowed in the current year.

activity from Form 4684 on line 2c

Line 5

Part II—Simplified

and enter “Form 4684” on the dotted

line next to the entry space or (b)

Current Year Profit (Loss)

Computation of Amount

enter the amount attributable to the

If line 5 shows a current year profit,

activity carried from Form 4684 to

At Risk

you may not have to complete the

Form 4797 on line 2b. If you carry a

Part II is a simplified method of

rest of this form. Report all of the

loss from Form 4684 to Schedule A

figuring your amount at risk. It can be

income, gains, deductions, and

(Form 1040), enter on line 2c either

used only if you know your adjusted

losses shown on lines 1 through 4 on

the loss from Schedule A or the loss

basis in the activity or in your interest

the forms and schedules normally

from Form 4684.

in the partnership’s or

used, and attach them to your tax

Taxpayers other than partners or

S corporation’s at-risk activity.

return. Also attach Form 6198 and

S corporation shareholders.

keep a copy for your records.

Part III is a longer method of

Include on your current year

If your current year profit is from a

figuring your amount at risk, which

Schedule D, Form 4797, or other

passive activity and you have a loss

may allow a larger amount at risk.

forms and schedules any prior year

from any other passive activity, see

You do not need to complete Part II if

losses that you could not deduct

the Instructions for Form 8582,

you use Part III.

because of the at-risk rules.

Passive Activity Loss Limitations, or

Partners and S corporation

Line 6

the Instructions for Form 8810,

shareholders. Include on lines 2a,

Corporate Passive Activity Loss and

2b, and 2c your current year gains

Adjusted Basis on the First Day

Credit Limitations, whichever applies.

and losses and prior year losses

of Tax Year

Note: Even if you have a current

attributable to the activity that you

year profit on line 5, you may have

Sole proprietors. Filers of

could not deduct because of the

recapture income if you received a

Schedules C and F (Form 1040) must

at-risk rules.

distribution or had a transaction

not reduce the amount on this line by

Line 3

during the year that reduced your

any liabilities. See Pub. 551, Basis of

amount at risk in the activity to less

Assets, for rules on adjusted basis.

Other Income and Gains From

than zero at the close of the tax year.

Partners. To figure the adjusted

See Pub. 925 for information on the

the Activity

basis, see Pub. 541, Partnerships.

recapture rules.

If you were a partner or S corporation

S corporation shareholders. To

shareholder, include on line 3 other

If line 5 shows a current year loss,

figure the adjusted basis, see the

income and gains from Schedule K-1

your loss may be limited to the

Instructions for Form 1120S.

that you did not include on lines 1

income or gains, if any, included on

through 2c.

lines 1, 2, and 3. Separate the items

Note: If the partnership or

of income, gains, deductions, and

S corporation is engaged in more

Line 4

losses on lines 1 through 4. The

than one at-risk activity or in both

income and gains are fully reportable

at-risk activities and not-at-risk

Other Deductions and Losses

on your tax return. The deductions

activities, you must figure the part of

From the Activity

and losses are allowable (subject to

your adjusted basis that is allocable

If you were a partner or S corporation

any other limitation such as the

to each at-risk activity. See

shareholder, include on line 4 other

passive activity rules) to the extent of

Aggregation or Separation of

deductions and losses from Schedule

the income and gains. To determine

Activities on page 2 to determine

K-1 that you did not include on lines 1

the allowable portion of each

each at-risk activity in which a

through 2c.

deduction or loss, divide each

partnership or S corporation is

deduction or loss from the activity by

engaged.

If you have investment interest

the total loss from the activity on line

expense from your at-risk activity, first

Line 7

5. Then, multiply the total income and

complete Form 4952, Investment

gains by this fraction.

Interest Expense Deduction, to figure

Increases for the Tax Year

your allowable investment interest

Complete the rest of the form to

Do not include the current year

deduction.

see how much, if any, of the excess

income or gains shown on lines 1

loss can be deducted.

If you have investment interest

through 3.

expense from other activities on

Example. Jill has a Schedule C

Form 4952, determine the allowable

loss of $4,600 on line 1 and a

Include changes during the current

investment interest deduction

Schedule D gain of $3,100 on line 2a.

tax year in amounts that increase

attributable to the at-risk activity

Line 5 shows a current year loss of

your amount at risk, such as the

included on line 8 of Form 4952, and

$1,500. Jill reports the $3,100 gain on

following.

-3-

Instructions For Form 6198 - At-Risk Limitations - 2003 Page 3

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