Instructions for Form 6198

(Rev. January 2020)

At-Risk Limitations

For use with Form 6198 (Rev. November 2009) or later revision

Department of the Treasury

Internal Revenue Service

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

section 1245(a)(3).

Certain equipment leasing 

activities by closely held C 

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 

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).

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CAUTION

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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;

Dec 10, 2019 Cat. No. 50013J
• 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 

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 

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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 

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.

Complete the rest of the form to see 

how much, if any, of the excess loss can 

be deducted.

Example. Jill has a Schedule C 

(Form 1040 or 1040-SR) loss of $4,600 

on line 1 and a Schedule D (Form 1040 

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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 

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

Do not include the current year income 

or gains shown on lines 1 through 3.

Include changes during the current 

tax year in amounts that increase your 

amount at risk, such as the following.

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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.

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 

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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 -0- 

on 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, 

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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 ......................... 4.

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.

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.

b. Reserve for bad debts for the activity (see instructions below) .............. 10b.

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 Keep for Your Records

(a)

Year

(b)

Amount of loss for the 

year

(c)

Amount not at risk at end 

of year

(d)

Total amounts from 

column (f) for all prior years

(e)

Subtract (d) from (c)

(f)

Smaller of (b) or (e)

Total (include on Form 6198, line 12) ............................................................. ▶

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 

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 

CAUTION

!

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 

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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 

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 

CAUTION

!

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 Keep for Your Records

(a)

Year

(b)

Percentage depletion deduction

(c)

Adjusted basis of depletable property before 

any depletion deduction for 

the year

(d)

Excess percentage depletion 

(column (b) minus column (c))

but not less than zero

Total .................................................................... ▶

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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 

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.

CAUTION

!

For loans, enter the amount of 

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, 

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 

TIP TIP

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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.

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.

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