Instructions For Form 6198 - At-Risk Limitations (Page 3 of 8) in pdf

Taxpayers other than partners or

Instructions for Form 8582, Passive

Line 6

S corporation shareholders. Include

Activity Loss Limitations, or the

on your current year Schedule D, Form

Instructions for Form 8810, Corporate

Adjusted Basis on the First Day

4797, or other forms and schedules any

Passive Activity Loss and Credit

of Tax Year

prior year losses that you could not

Limitations, whichever applies.

Sole proprietors. Filers of Schedules

deduct because of the at-risk rules.

C and F (Form 1040) must not reduce

Partners and S corporation

Even if you have a current year

the amount on this line by any liabilities.

shareholders. Include on lines 2a, 2b,

profit on line 5, you may have

See Pub. 551, Basis of Assets, for rules

and 2c your current year gains and

recapture income if you

CAUTION

on adjusted basis.

losses and prior year losses attributable

received a distribution or had a

to the activity that you could not deduct

Partners. To figure the adjusted basis,

transaction during the year that reduced

because of the at-risk rules.

see Pub. 541, Partnerships.

your amount at risk in the activity to

less than zero at the close of the tax

S corporation shareholders. To

Line 3

year. See Pub. 925 for information on

figure the adjusted basis, see the

the recapture rules.

Instructions for Form 1120S.

Other Income and Gains From

the Activity

If the partnership or

If line 5 shows a current year loss,

S corporation is engaged in

If you were a partner or S corporation

your loss may be limited to the income

more than one at-risk activity or

shareholder, include on line 3 other

CAUTION

or gains, if any, included on lines 1, 2,

in both at-risk activities and not-at-risk

income and gains from Schedule K-1

and 3. Separate the items of income,

activities, you must figure the part of

that you did not include on lines 1

gains, deductions, and losses on lines

your adjusted basis that is allocable to

through 2c.

1 through 4. The income and gains are

each at-risk activity. See Aggregation or

Line 4

fully reportable on your tax return. The

Separation of Activities on page 2 to

deductions and losses are allowable

determine each at-risk activity in which

Other Deductions and Losses

(subject to any other limitation such as

a partnership or S corporation is

the passive activity rules) to the extent

From the Activity

engaged.

of the income and gains. To determine

If you were a partner or S corporation

Line 7

the allowable portion of each deduction

shareholder, include on line 4 other

or loss, divide each deduction or loss

deductions and losses from Schedule

Increases for the Tax Year

from the activity by the total loss from

K-1 that you did not include on lines 1

the activity on line 5. Then, multiply the

Do not include the current year income

through 2c.

total income and gains by this fraction.

or gains shown on lines 1 through 3.

If you have investment interest

expense from your at-risk activity, first

Include changes during the current

Complete the rest of the form to see

complete Form 4952, Investment

tax year in amounts that increase your

how much, if any, of the excess loss

Interest Expense Deduction, to figure

amount at risk, such as the following.

can be deducted.

your allowable investment interest

1. Net fair market value (FMV) of

deduction.

property you own (not used in the

Example. Jill has a Schedule C

If you have investment interest

activity) that secures nonrecourse loans

loss of $4,600 on line 1 and a Schedule

expense from other activities on

used to finance the activity, to acquire

D gain of $3,100 on line 2a. Line 5

Form 4952, determine the allowable

property used in the activity, or to

shows a current year loss of $1,500. Jill

investment interest deduction

acquire your interest in the activity.

reports the $3,100 gain on Schedule D

attributable to the at-risk activity

Include the nonrecourse loans on line 9

and can deduct $3,100 of the $4,600

included on line 8 of Form 4952, and

(if included on line 6). Generally, the

loss on Schedule C. Jill completes Part

enter that amount on line 4 of

net FMV is determined when the

II or Part III of Form 6198 and

Form 6198. You must reduce the

property is pledged as security for the

determines that only $600 of the $1,500

allowable investment interest deduction

loan.

excess loss on line 5 is deductible in

on Form 4952 by the amount you carry

Do not enter the net FMV if (a) the

the current year. She replaces the

to Form 6198. If you filed Form 6198 for

nonrecourse loan was from a person

$4,600 loss first entered on Schedule C

the prior tax year, include on line 4 of

who has an interest in the activity other

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

your current year Form 6198 any

than as a creditor or who is related

loss allowed in the current year.

investment interest expense from the

under section 465(b)(3)(C) to a person

prior tax year that was limited because

(except you) having such an interest,

of the at-risk rules.

and (b) the activity is described in (1)

Part II—Simplified

through (5) (or (6) for amounts

Line 5

borrowed after May 3, 2004) under

Computation of Amount

At-Risk Activities on page 1. However,

Current Year Profit (Loss)

At Risk

(a) does not apply to amounts

If line 5 shows a current year profit, you

borrowed by a corporation from a

Part II is a simplified method of figuring

may not have to complete the rest of

person whose only interest in the

your amount at risk. It can be used only

this form. Report all of the income,

activity is as a shareholder of the

if you know your adjusted basis in the

gains, deductions, and losses shown on

corporation. See Pub. 925 for

activity or in your interest in the

lines 1 through 4 on the forms and

definitions.

partnership’s or S corporation’s at-risk

schedules normally used, and attach

2. Cash and the adjusted basis of

them to your tax return. Also attach

activity.

other property (determined at the time

Form 6198 and keep a copy for your

of the contribution) contributed to the

records.

Part III is a longer method of figuring

activity during the tax year. However, if

your amount at risk, which may allow a

If your current year profit is from a

you used your own assets to repay a

passive activity and you have a loss

larger amount at risk. You do not need

nonrecourse debt and you included an

from any other passive activity, see the

to complete Part II if you use Part III.

amount in (1) above, the amount

-3-

Instructions For Form 6198 - At-Risk Limitations Page 3

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