Form 6198: at-risk limitations on losses
Form 6198 is the IRS form individuals, estates, trusts and some closely held corporations use to limit a loss from an activity to the amount they have at risk in it. Nonrecourse debt and protected amounts don't count, and any disallowed loss carries forward to next year.
“The at-risk rules of section 465 limit the amount of the loss you can deduct to the amount at risk.” IRS, Instructions for Form 6198 (Rev. November 2025)
Who has to file Form 6198?
Form 6198 is filed by individuals, estates, trusts and certain closely held C corporations that have a loss from an at-risk activity in which some amount is not at risk, according to the Instructions for Form 6198 (Rev. November 2025). The at-risk rules of IRC section 465 limit a deductible loss to the amount the taxpayer actually stands to lose. The trigger applies whether the activity is held directly on Schedule C, E or F, or through a partnership or S corporation.
The instructions list the activities covered:
- Holding, producing or distributing films or videotapes
- Farming
- Leasing section 1245 property
- Exploring for or exploiting oil and gas or geothermal deposits
- Any other activity carried on as a trade or business or for the production of income
Holding real property placed in service before 1987, or an interest acquired before 1987 in a pass-through entity already holding real property, is outside the at-risk rules. That exception does not cover mineral property. If an activity shows a profit on line 5, the rest of the form usually isn't needed, though a distribution that drives the amount at risk below zero can still cause recapture income.
Where does each K-1 and loan amount go on Form 6198?
Each Form 6198 line draws on a specific document, and for partners most of them come from Schedule K-1 and its liability detail. Part I collects the activity's income and losses, and Parts II or III measure the amount at risk, per the Instructions for Form 6198 (Rev. November 2025).
| Source document | What it is | Form 6198 line |
|---|---|---|
| K-1 (1065 or 1120-S), box 1 | Ordinary income (loss), plus any prior-year loss disallowed by the at-risk rules | 1 |
| Schedule D or Form 4797 for the activity | Gain or loss on assets used in the activity, or on the interest | 2a, 2b |
| Form 4684 or other form | Casualty or other gain or loss for the activity | 2c |
| Other K-1 income items | Income and gains not on lines 1 to 2c | 3 |
| Other K-1 deduction items, Form 4952 | Deductions and allowed investment interest | 4 |
| Prior-year basis records | Adjusted basis on the first day of the year | 6 |
| Capital contribution records, loan papers | Cash contributed, loans with personal liability, qualified nonrecourse financing | 7 |
| K-1 (1065), item K1, nonrecourse | Share of nonrecourse liabilities included in line 6 basis | 9 |
| K-1 (1065), box 19, or K-1 (1120-S), box 16, code D | Distributions during the year | 9 |
| Prior-year Form 6198, line 19b | Amount at risk carried into Part III | 15 |
The Partner's Instructions for Schedule K-1 (Form 1065) (2025) say a partner generally uses only the item K1 amounts shown as qualified nonrecourse financing and recourse to figure the amount at risk. That is why the nonrecourse share sits in basis on line 6 and comes back out on line 9. For a sole proprietor, line 1 is the Schedule C or Schedule F result for the activity before the at-risk limit, including prior-year deductions the at-risk rules disallowed.
How is the amount at risk figured on Form 6198?
The amount at risk on Form 6198 starts from adjusted basis and removes anything the taxpayer is protected from losing. Part II, the simplified method, runs from line 6 (adjusted basis on the first day of the year) plus line 7 increases, minus line 9 decreases, to line 10b. Part III is a longer method that can give a larger amount, and line 20 takes the larger of line 10b or line 19b.
The Instructions for Form 6198 treat these as not at risk:
- Nonrecourse loans, unless secured by the taxpayer's own property outside the activity, or qualified nonrecourse financing on real property
- Amounts protected by a guarantee, stop-loss agreement or similar arrangement
- Amounts borrowed from someone with an interest in the activity other than as a creditor, or a related person, subject to the exceptions in the instructions
Qualified nonrecourse financing is borrowed for holding real property, secured by that property, not convertible, and lent or guaranteed by a government or borrowed from a qualified person such as a bank. The seller of the property is never a qualified person. Line 21, the deductible loss, is the smaller of the line 5 loss or line 20. Any excess carries forward.
What does a Form 6198 calculation look like?
For example, Jordan is a general partner in a partnership that leases and services commercial equipment. Jordan's adjusted basis on January 1, 2025, is $20,000, which includes a $15,000 share of nonrecourse liabilities from K-1 item K1. During 2025 Jordan contributes $5,000 of cash and receives a $2,000 distribution. The 2025 K-1 shows a $14,000 ordinary loss in box 1 and no other items. Jordan's year-end basis before the loss is $23,000, so basis does not limit the loss and Form 6198 is next.
| Step | Form 6198 line | Amount |
|---|---|---|
| Ordinary loss from K-1, box 1 | 1 | ($14,000) |
| Current year loss | 5 | ($14,000) |
| Adjusted basis, first day of year | 6 | $20,000 |
| Cash contributed | 7 | $5,000 |
| Add lines 6 and 7 | 8 | $25,000 |
| Nonrecourse share ($15,000) plus distribution ($2,000) | 9 | $17,000 |
| Amount at risk | 10b | $8,000 |
| Larger of line 10b or 19b | 20 | $8,000 |
| Deductible loss | 21 | ($8,000) |
| Loss carried to 2026, line 1 | Carryover | $6,000 |
Jordan deducts $8,000, or 57% of the loss, subject to the passive rules, and carries $6,000 forward. If the activity is passive to Jordan, the $8,000 enters Form 8582 as the loss for that activity. If Jordan materially participates, it goes on Schedule E, line 28, column (i).
What do reviewers check on Form 6198?
A reviewer checking Form 6198 confirms six items, each tied to the November 2025 instructions or the 2025 Schedule E instructions. The K-1 liability detail in item K1 and the prior-year Form 6198 are the first documents to pull, since together they decide line 6, line 9 and any Part III starting point.
The loss allowed on line 21 then moves to Form 8582 if the activity is passive, or to Schedule E, line 28, column (i), if it is nonpassive. Basis comes first, so tie line 6 to the partner basis worksheet before testing at-risk amounts. When item K1 shows recourse debt, ask for the partnership agreement or loan papers, since a guarantee or stop-loss arrangement protecting the partner makes that amount not at risk too.
Every line checked against the documents the client sent
Filed reads the client's K-1, liability detail, loan documents and prior-year Form 6198, then checks every line of Form 6198 against them. Anything that doesn't tie comes back as a review item with a citation to the source.
Book a demoLine 6 includes $15,000 of nonrecourse liabilities from K-1 item K1, but line 9 shows only the $2,000 distribution. Confirm whether the $15,000 is qualified nonrecourse financing on real property, or whether it belongs on line 9.
Common questions
Is the amount at risk the same as partner basis?
The amount at risk is usually lower than partner basis. Basis includes the partner's share of all partnership liabilities, but the Partner's Instructions for Schedule K-1 (Form 1065) say only the qualified nonrecourse financing and recourse amounts in item K1 generally count toward the amount at risk, so nonrecourse debt drops out.
Does rental real estate with a bank mortgage pass the at-risk test?
Rental real estate financed by a bank mortgage usually passes the at-risk test. The Instructions for Form 6198 treat qualified nonrecourse financing secured by the real property and borrowed from a qualified person, such as a bank, as at risk. Real property placed in service before 1987 is outside the at-risk rules altogether.
What happens to a loss Form 6198 disallows?
A loss Form 6198 disallows carries over to the next year and is treated as a deduction from the same activity in that year. The instructions have partners and S corporation shareholders add it to next year's line 1, and it becomes deductible once the amount at risk increases enough to absorb it.