i6198--2020-01-00

Instructions for Form 6198

Department of the Treasury
Internal Revenue Service

(Rev. January 2020)

At-Risk Limitations
For use with Form 6198 (Rev. November 2009) or later revision
Section references are to the Internal Revenue
Code unless otherwise noted.

General Instructions
Purpose of Form

Use Form 6198 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), and
• The deductible loss for the current
year (Part IV).
The at-risk rules of section 465 limit
the amount of the loss you can deduct
to the amount at risk.
For more details, see Pub. 925,
Passive Activity and At-Risk Rules.

Who Must File

Form 6198 is filed by individuals
(including filers of Schedules C, E, and
F (Form 1040 or 1040-SR)), estates,
trusts, and certain closely held C
corporations described in section 465(a)
(1)(B), as modified by section 465(a)(3).
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 (see Amounts Not at
Risk, later) invested in an at-risk activity
(defined below) that incurred a loss.
You must file Form 6198 if you are
engaged in an activity included in (6)
under At-Risk Activities (see At-Risk
Activities below) and you have
borrowed amounts described in (3)
under Amounts Not at Risk (see
Amounts Not at Risk, later).

At-Risk Activities

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.
1. Holding, producing, or distributing
motion picture films or videotapes.
2. Farming, as defined in
section 464(e)(1).
3. Leasing any section 1245
property, as defined in
Dec 10, 2019

section 1245(a)(3).
Certain equipment leasing
activities by closely held C
CAUTION corporations are not subject to
the at-risk rules. See sections 465(c)(4),
(5), and (6).

!

4. Exploring for or exploiting oil and
gas resources.
5. Exploring for or exploiting
geothermal deposits, as defined in
section 613(e)(2).
6. Any other activity that is not
included in (1) through (5) above.
Exception. Holding real property
placed in service before 1987 and
holding an interest acquired before
1987 in a partnership, an S corporation,
or other pass-through entity already
engaged in an activity of holding real
property before 1987 are not affected by
the at-risk rules. This exception does
not apply to holding mineral property.
A special exception to the
at-risk rules applies to a
CAUTION qualifying business of a
qualified C corporation. See Pub. 925
for details.

!

Amounts Not at Risk

You are not considered at risk for any of
the following.
1. 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). See
Qualified Nonrecourse Financing, later.
2. Cash, property, or borrowed
amounts used in the activity that are
protected against loss by a guarantee,
stop-loss agreement, or other similar
arrangement (excluding casualty
insurance and insurance against tort
liability).
Cat. No. 50013J

3. 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 (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. See Pub. 925 for
definitions.
4. Any cash or property contributed
to the activity or to your interest in the
activity that is:
a. Financed through nonrecourse
indebtedness or protected against loss
through a guarantee, stop-loss
agreement, or other similar
arrangement; or
b. 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 (i) amounts borrowed
by a corporation from a person whose
only interest in the activity is as a
shareholder of the corporation, or (ii)
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. See Pub. 925 for
definitions.
You do not have to file Form 6198 if
you are engaged in an activity included
in (6) under At-Risk Activities, earlier,
and you only have amounts borrowed
before May 4, 2004, that are described
in (3) above.

Qualified Nonrecourse
Financing

Qualified nonrecourse financing is
financing for which no one is personally
liable for repayment and is:
• Borrowed by you in connection with
holding real property;

• Secured by real property used in the
activity;
• Not convertible debt; and
• Loaned or guaranteed by any federal,
state, or local government, or borrowed
by you from a qualified person (defined
below).
See Regulations section 1.465-27 for
details, including rules for partnership
liabilities and disregarded entities. This
section is effective for any financing
incurred on or after August 4, 1998, but
taxpayers can apply the section
retroactively.
A qualified person is a person who
actively and regularly engages in the
business of lending money (for
example, a bank or savings and loan
association).
A qualified person is not:

• A person related to you unless the

person would be a qualified person but
for the relationship and the nonrecourse
financing is commercially reasonable
and on the same terms as loans to
unrelated persons,
• The seller of the property (or a person
related to the seller), or
• A person who receives a fee as a
result of your investment in the property
(or a person related to that person).

Aggregation or Separation
of Activities
File one form if your activities are listed
under the aggregation rules. File a
separate form for each activity if your
activities are listed under the separation
rules.

Aggregation rules. All section 1245
properties that are leased or held for
lease and placed in service in any tax
year of a partnership or an S corporation
are treated as one activity. A partner in a
partnership or an S corporation
shareholder can aggregate and treat as
a single activity all of the properties of
that partnership or S corporation that
are included within each of categories
(1), (2), (4), and (5) under At-Risk
Activities, earlier.
Activities described in (6) under
At-Risk Activities , earlier, that constitute
a trade or business are treated as one
activity if (a) the taxpayer actively
participates in the management of that
trade or business, or (b) the business is
carried on by a partnership or an S
corporation and 65% or more of the
losses for the tax year are allocable to
persons who actively participate in the
management of the trade or business.
Similar rules apply to activities

described in (1) through (5) under
At-Risk Activities, earlier.
Separation rules. Your activity with
respect to each film, videotape, section
1245 property that is leased or held for
lease, farm, holding of real property, oil
and gas property (as defined in section
614), or geothermal property (as
defined in section 614) that is not
aggregated with other activities under
the above rules is treated as a separate
activity.
Each investment that is not a part of
a trade or business is treated as a
separate activity.

Specific Instructions
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 the
amounts to 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 or a similar
statement.
Description of activity. After the
description of the activity, if applicable,
enter the name and identifying number
of the partnership or S corporation.

Part I—Current Year Profit
(Loss) From the Activity,
Including Prior Year
Nondeductible Amounts
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 example, if 2020 is the
current year, and your 2019 Schedule C
(Form 1040 or 1040-SR) had a $1,500
loss on line 31, but because of the
at-risk rules your loss was limited to
$500, include the $1,000 on your 2020
-2-

Schedule C (Form 1040 or 1040-SR) in
Part V, Other Expenses, and identify it
as a prior year loss.
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 enter in
Part I. For example, if your prior year
Schedule K-1 had a $1,500 loss in
box 1, but because of the at-risk rules
your loss was limited to $500, include
both the $1,000 loss from your prior
year and the amount from your current
year Schedule K-1 on line 1 of Form
6198.
Closely held corporations. A closely
held corporation must apply the
limitation on the deduction for interest
expense under section 163(j) before
applying the at-risk limitations.

Line 1
Ordinary Income (Loss)
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 on line 1 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 lines 2a, 2b, 2c,
and 4.
Partners and S corporation shareholders. Enter the amount from box 1
of your current year Schedule K-1 (Form
1065 or Form 1120-S) (plus any prior
year ordinary loss that you could not
deduct because of the at-risk rules).

Lines 2a, 2b, and 2c
Gain (Loss)
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 example, if you file
Form 4684, Casualties and Thefts, and
carry amounts from that form to Form
4797, Sales of Business Property, either
(a) enter the amounts attributable to the
activity from Form 4684 on line 2c and
enter “Form 4684” on the dotted line
next to the entry space, or (b) enter the
amount attributable to the activity
carried from Form 4684 to Form 4797
on line 2b. If you carry a loss from Form
4684 to Schedule A (Form 1040 or
1040-SR), enter on line 2c either the
loss from Schedule A (Form 1040 or
1040-SR) or the loss from Form 4684.
Taxpayers other than partners or
S corporation shareholders. Include
on your current year Schedule D (Form
1040 or 1040-SR), Form 4797, or other
forms and schedules any prior year
losses that you could not deduct
because of the at-risk rules.
Partners and S corporation shareholders. Include 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
Other Income and Gains From the
Activity
If you were a partner or S corporation
shareholder, include on line 3 other
income and gains from Schedule K-1
that you did not include on lines 1
through 2c.

Line 4
Other Deductions and Losses
From the Activity
If you were a partner or S corporation
shareholder, include on line 4 other
deductions and losses from
Schedule K-1 that you did not include
on lines 1 through 2c.
If you have investment interest expense
from your at-risk activity, first complete
Form 4952, Investment Interest
Expense Deduction, to figure your
allowable investment interest deduction.
If you have investment interest
expense from other activities on
Form 4952, determine the allowable
investment interest deduction
attributable to the at-risk activity

included on line 8 of Form 4952, and
enter that amount on line 4 of
Form 6198. 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, include 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
Current Year Profit (Loss)
If line 5 shows a current year 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 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.
Even if you have a current year
profit on line 5, you may have
CAUTION recapture income if you
received a distribution or had a
transaction during the year that reduced
your amount at risk in the activity to less
than zero at the close of the tax year.
See Pub. 925 for information on the
recapture rules.

!

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.

or 1040-SR) gain of $3,100 on line 2a.
Line 5 shows a current year loss of
$1,500. Jill reports the $3,100 gain on
Schedule D (Form 1040 or 1040-SR)
and can deduct $3,100 of the $4,600
loss on Schedule C (Form 1040 or
1040-SR). Jill completes Part II or Part
III of Form 6198 and determines that
only $600 of the $1,500 excess loss on
line 5 is deductible in the current year.
She replaces the $4,600 loss first
entered on Schedule C (Form 1040 or
1040-SR) with $3,700 ($3,100 + $600),
the total loss allowed in the current year.

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.
Part III is a longer method of figuring
your amount at risk, which may allow a
larger amount at risk. You do not need
to complete Part II if you use Part III.

Line 6
Adjusted Basis on the First Day of
Tax Year
Sole proprietors. Filers of Schedules
C and F (Form 1040 or 1040-SR) must
not reduce the amount on this line by
any liabilities. See Pub. 551, Basis of
Assets, for rules on adjusted basis.
Partners. To figure the adjusted basis,
see Pub. 541, Partnerships.
S corporation shareholders. To
figure the adjusted basis, see the
Instructions for Form 1120-S.
If the partnership or S
corporation is engaged in more
CAUTION than one at-risk activity or in
both at-risk activities and not-at-risk
activities, you must figure the part of
your adjusted basis that is allocable to
each at-risk activity. See Aggregation or
Separation of Activities, earlier, to
determine each at-risk activity in which
a partnership or S corporation is
engaged.

!

Line 7
Increases for the Tax Year

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

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

Example. Jill has a Schedule C
(Form 1040 or 1040-SR) loss of $4,600
on line 1 and a Schedule D (Form 1040

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

-3-

1. 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.
Include 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.
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) (or (6) for amounts borrowed
after May 3, 2004) under At-Risk
Activities, earlier. 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. See
Pub. 925 for definitions.
2. Cash and the adjusted basis of
other property (determined at the time of
the contribution) contributed to the
activity during the tax year. However, if
you used your own assets to repay a
nonrecourse debt and you included an
amount in (1) above, the amount
included as repayments cannot be more
than 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.
3. 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 (defined earlier under
Qualified Nonrecourse Financing). Do
not enter amounts included in (2) under
Increases for the Tax Year or on line 6.
4. Percentage depletion for this year
deducted in excess of the adjusted
basis of depletable property for the
activity.

Line 9
Decreases for the Tax Year
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.
1. Nonrecourse loans (including
recourse loans changed to nonrecourse
loans) other than qualified nonrecourse
financing (defined earlier under

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.
2. Cash, property, or borrowed
amounts protected against loss by a
guarantee, stop-loss agreement, or
other similar arrangement. Enter this
amount only if it was included on line 6.
Do not include items covered by
casualty insurance or insurance against
tort liability.
3. 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 and not included
under (1) or (2) above. This applies only
to activities described in (1) through (5)
under At-Risk Activities, earlier. See
Pub. 925 for definitions and more
details.
4. 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.
5. Nonrecourse liabilities included
on line 6 of property you contributed to
the activity.

Line 10b
Amount At Risk
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.

!

CAUTION

If the amount on line 10b is
zero, you may be subject to the
recapture rules. See Pub. 925.

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
-4-

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 -0on line 15 and complete the rest of Part
III.

Effective Dates

Generally, the effective date is the first
day of the first tax year beginning after
1975 if the activity is described in (1)
through (4) under At-Risk Activities,
earlier.
If the activity is described in (5) under
At-Risk Activities, earlier, the effective
date is usually October 1, 1978, for
wells started after September 30, 1978.
Generally, a well started before October
1, 1978, is not subject to the at-risk
rules.
The activity of holding real property is
subject to the at-risk rules for property
placed in service after 1986, and for an
interest acquired after 1986 in an S
corporation, partnership, or other
pass-through entity engaged in an
activity of holding real property. An
activity of holding real property does not
include the holding of mineral property.
Holding mineral property may be
subject to at-risk limitations other than
the special rules that apply to activities
of holding real property.
In most cases, the effective date for
all other at-risk activities is the first day
of the first tax year beginning after 1978.
If you are a partner or an S
corporation shareholder, the date you
became a partner or shareholder may
determine whether you are subject to
the at-risk rules.

Line 11
Investment in the Activity at the
Effective Date
Taxpayers other than partners or
S corporation shareholders. Use the
Line 11 Worksheet and its instructions
to figure your investment in the activity
at the effective date. Enter all amounts
as of the effective date.
Partners and S corporation shareholders. Enter on line 11 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. Enter

the part that is allocable to the at-risk
activity on line 11.

Line 11 Worksheet—Figure Your Investment in the Activity at the
Effective Date

Keep for Your Records

(If the activity began on or after the effective date, do not complete this worksheet.)
1.

Cash on hand and in banks for the activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

2.

Inventories for the activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

3a.

Cost or other basis of depreciable assets for the activity (see instructions
below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3a.

b.

Accumulated depreciation for the activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3b.

4.

Adjusted basis of depreciable assets for the activity. Subtract line 3b from line 3a . . . . . . . . . . . . . . . . . . . . . . . . .

5a.

Cost or other basis of depletable assets at the time contributed to the
activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5a.

b.

Accumulated depletion taken on or after property was contributed to the
activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5b.

4.

6.

Adjusted basis of depletable assets for the activity. Subtract line 5b from line 5a . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

7.

Adjusted basis of land for the activity (net of any amortization) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.

8.

Other assets for the activity

..............................................................

8.

9.

Cash basis taxpayer investment in the activity at the effective date. Add lines 1, 2, 4, 6, 7, and 8. Enter here and on
Form 6198, line 11. (Accrual basis taxpayers also complete lines 10a through 14 below to figure the amount to enter
on Form 6198, line 11.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.

10a.

Trade notes and accounts receivable for the activity . . . . . . . . . . . . . . . . . . . . .

10a.

Reserve for bad debts for the activity (see instructions below)

10b.

b.

..............

11.

Net receivables for the activity. Subtract line 10b from line 10a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11.

12.

Add lines 9 and 11

....................................................................

12.

13.

Accounts payable for the activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13.

14.

Accrual basis taxpayer investment in the activity at the effective date. Subtract line 13 from line 12. Enter here and on
Form 6198, line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14.

Worksheet Instructions
Lines 3a and 3b. See the instructions for line 16, item (2), earlier, for the rules on basis. Generally, the amounts for lines 3a and 3b can be taken directly from your
depreciation schedule. Use the depreciation schedule you filed at the effective date, not the schedule for the current tax year.
Line 10b. If you use a reserve for bad debts, subtract from your accounts receivable the balance of the reserve on the effective date. But only subtract up to the amount you
were allowed as a deduction under repealed section 166(c) for years before the effective date.

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Line 12 Worksheet—Figure Your Total Losses From Years Before the
Effective Date for Which There Were Equal or Greater Amounts Not
At Risk at Year End
(a)
Year

(b)
Amount of loss for the
year

Total (include on Form 6198, line 12)

(c)
Amount not at risk at end
of year

(d)
Total amounts from
column (f) for all prior years

Keep for Your Records
(e)
Subtract (d) from (c)

.............................................................

(f)
Smaller of (b) or (e)

▶

Worksheet Instructions
Use the first line of the worksheet for the first year in which you had a loss and amounts not at risk. List each subsequent year in order.
Column (d). For each year after the first year, enter the total amount in column (f) for all prior years.
Example. John had losses in 1970, 1971, and 1975. At the end of each of those years, John had outstanding amounts not at risk of $1,000. John had losses of $500 in 1970,
$300 in 1971, and $500 in 1975.

For 1970, John enters $500 in column (b), $1,000 in column (c), $1,000 in column (e), and $500 in column (f).
For 1971, John enters $300 in column (b), $1,000 in column (c), $500 in column (d) (the total amount from column (f) for all prior years), $500 in column
(e), and $300 in column (f).
For 1975, John enters $500 in column (b), $1,000 in column (c), $800 in column (d) (the total amount from column (f) for all prior years ($500 + $300)),
$200 in column (e), and $200 in column (f). Of the $500 loss for 1975, only $200 is a loss for which there was an equal or greater amount not at risk at
year end.
John's total loss from years before the effective date for which there were equal or greater amounts not at risk at year end is $1,000 (the total of the amounts
in column (f)).

Line 12
Increases at Effective Date
Enter your share of amounts such as the
following.
1. 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,
earlier. 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. See Pub. 925 for
definitions. If the activity is described in
(6) under At-Risk Activities, earlier, you
can include these amounts.
2. 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
and its instructions to figure 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.
If you took a deduction for
percentage depletion for an
CAUTION item of depletable property in
excess of the adjusted basis of the
property in a year for which you had a
loss for the activity, subtract the amount
of the excess from the loss for that year.

!

Line 14
Decreases at Effective Date
Enter your share of amounts such as the
following.
1. 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.
2. Cash, property, or borrowed
amounts, protected against loss by a
guarantee, stop-loss agreement, or
other similar arrangement outstanding
-6-

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.
3. 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 and not
included under (1) or (2) above. This
applies only to activities described in (1)
through (5) under At-Risk Activities,
earlier. See Pub. 925 for definitions and
more details.
4. 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
Amount At Risk
If you completed Part III of Form 6198
for the prior tax year, check 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 tax
CAUTION form. Also, do not include on
this line any amounts that are not at risk.

!

Line 16
Increases
If you completed Part III of Form 6198
for your prior tax year, check box b and
enter on this line any increases
described in (1) through (9) 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.
1. 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.
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) (or (6) for amounts borrowed
after May 3, 2004) under At-Risk
Activities, earlier. 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. See
Pub. 925 for definitions.
2. 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. See Pub. 551 for details.
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.
3. 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 (defined under
Qualified Nonrecourse Financing,
earlier). Do not enter amounts included
in (2) above.
4. 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 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. For years since
the effective date that the activity had a
net loss, see the instructions for line 18,
item (5), later.
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.
5. 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.
6. Amounts you included in income
since the effective date because your
amount at risk was less than zero.
7. 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.
8. 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 to figure this amount. Be
sure to include the amount for the
current year.
9. If you are an S corporation
shareholder, enter the loans you made

Line 16 Worksheet (Item 8)—Figure Percentage Depletion Deducted in
Excess of
the Adjusted Basis of Depletable Property
(a)
Year

(b)
Percentage depletion deduction

Keep for Your Records

(c)
Adjusted basis of depletable property before
any depletion deduction for
the year

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-7-

(d)
Excess percentage depletion
(column (b) minus column (c))
but not less than zero

▶

to your S corporation since the effective
date. Do not include notes that you have
given to the activity that are still
outstanding.

Line 18
Decreases
If you completed Part III of Form 6198
for your prior tax year, check box b and
enter on this line any decreases
described in (1) through (8) below that
occurred since the end of your prior tax
year.
If you completed Part III of your prior
year tax form, “since effective date”
means since the end of your prior tax
year.
Enter your share of amounts such as
the following.
1. 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.
See the instructions at the beginning of
Part III, earlier, for information on
effective dates.
2. 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 and not included under (1)
above. This applies to activities
described in (1) through (5) (or (6) for
amounts borrowed after May 3, 2004)
under At-Risk Activities, earlier. See the
instructions at the beginning of Part III,
earlier, for information on effective
dates.
3. 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 on page 5.
Include 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.
4. Recourse loans (and qualified
nonrecourse financing) changed to
nonrecourse loans since the effective
date.
5. 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.
Your prior tax year line 21
deductible loss reduces your
CAUTION at-risk investment as of the
beginning of your current tax year.

!

6. Nonrecourse liabilities of property
you contributed to the activity since the
effective date.
7. Any other at-risk amounts
included on line 15 that changed to
amounts that are not at risk since the
effective date.
8. 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.

For loans, enter the amount of

TIP the loan you incurred, not the
current balance of the loan.

Line 19b
Amount At Risk
If the amount on line 19b is zero, you
may be subject to the recapture rules.
See Pub. 925.

Part IV—Deductible Loss
Line 21
Deductible Loss
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.
Examples. (a) If line 5 is a loss of
$400 and line 20 is $1,000, enter ($400)
on line 21. (b) If line 5 is a loss of $1,600
and line 20 is $1,200, enter ($1,200) on
line 21. (c) If line 5 is a loss of $800 and
line 20 is zero, enter -0- on line 21.
When comparing lines 5 and 20,

TIP treat the loss on line 5 as a

positive number only for
purposes of determining the amount to
enter on line 21.
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 next year.
Paperwork Reduction Act Notice.
We ask for the information on this form
to carry out the Internal Revenue laws of

-8-

the United States. You are required to
give us the information. We need it to
ensure that you are complying with
these laws and to allow us to figure and
collect the right amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions must
be retained as long as their contents
may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.

The time needed to complete and file
this form will vary depending on
individual circumstances. The estimated
burden for individual taxpayers filing this
form is approved under OMB control
number 1545-0074 and is included in
the estimates shown in the instructions
for their individual income tax return.
The estimated burden for all other
taxpayers who file this form is shown
below.
Recordkeeping . . . . . . . 1 hr., 12 min.
Learning about the law
or the form . . . . . . . . . .
1 hr.
Preparing the form . . . . 1 hr., 25 min.
Copying, assembling,
and sending the form
to the IRS . . . . . . . . . . .
20 min.

-9-

If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. See the instructions for the tax
return with which this form is filed.