Last Updated : January 14, 2009
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6198

Form 6198

Tax On Lump sum Distributions

At Risk Limitations

PURPOSE OF THE FORM:

Use Form 6198 to figure :

  • The current year profit (loss) from an at-risk activity for 2007 (PART- I)
  • The amount at risk for 2007 (PART - II or PART - III).
  • The deductible loss for 2007 (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, Refer publication 925.

For every Schedule C, E , F , Partnerships and S corporations K1 wkst. or Form 4835 loss , the "AT RISK " question must be answered.If the answer is " Some is not at RISK" then Form 6198 must be filled out for this activity and the loss is limited to the amount that is calculated on FORM 6198.

When form is added from the tree list the program asks under which form it is to be added and we can add it under the form mentioned in the list once by selecting the required form.
If the at- Risk property is rental, select the parent property from the combo box for which form 6198 is to be filed.

PART - I Current Year Profit (loss) From the Activity, Including Prior Year Nondeductible Amounts:

Description Of Activity:
In brief describe the income or loss producing activity.

Line 1:
Enter the taxpayer's 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 total deductions from the total income from the activity for the current year.
Donot 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.

Line 2:
Enter gains or losses without regard to the at-risk limitations, the limitation on capital losses, or the passive activity loss limitation.
Donot include amounts on lines 2a and 2b that are included on line 2c. Enter the form number or schedule letter in the description portion and the amount attributable to the activity from its form on this line.

Line 3:
If the taxpayer was a partner or S corporation shareholder. enter other income and gains fom schedule K-1 that you didnot include on line 1 through 2c.

Line 4:
If you have investment interest expense from your at-risk activity, enter on this line the investment interest expense deduction to figure your alowable investment interest deduction. This amount must be reduced by the allowable investment interest deduction on form 4952 by the amount you carry on form 6198.
If you filed form 6198 in 2006,include on line 4 of form 6198 any investment interest expense from 2006 that was limited because of the at-Risk rules.

Line 5:
The program adds line 1 to line 4 and enters the result on this line.
If line 5 shows a current year profit , you may not have to complete the rest of the form. Report all the income, gains , deductions, and losses shown on lines 1 through 4 on the forms and schedules normally used,
If your current year profit is from a passive activity and you have a loss form any other passive activity, refer the instructiuons of Form 8582 (passive activity loss limitaitons).

PART - II Simplified Computation Of Amount at Risk:

This is the simplifed method of figuring you amount at risk. It can be used only if You know your adjusted basis in the activity or in your interest in the Partenrship's or S corporation's at-risk activity.

Line 6:
Enter the adjusted basis for the activity ( or the adjusted basis of any partial interest in the activity) on the first day of the tax year.
If form 6198 Part - II was used last year the adjusted basis line would equal 10b less the dedcutible loss on line 21.

Line 7:
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 the taxpayer's amount at risk, such as loans used to finance theactivity or to acquire property used in the activity.

Line 8:
The program adds line 6 and line 7 and enters the result on this line.

Line 9:
Donot include the current year deductions or lossess shown on lines 1 through 4. Include changes during the current tax year in amounts that decrease the taxpayer's amount at risk, such as withdrawls and distributions during the tax year.

Line 10a:
The program subtracts line 9 from line 8 and enters the result on this line.

Line 10b:
If the amount on this line is smaller than the overall loss from the activity (line 5), complete PART - III to see if it gives you a larger amount at risk.
If the amount on line 10b is zero , then you may be subject to recapture rules. Refer publication 925.

PART - III Detailed Computation OF Amount At Risk

If PART -III of this form 6198 for this activity was completed last year, skip lines 11 through 14, check the checkbox on line 15b, enter the amount of line 19b plus line 5 (but not less than zero) from last year's FORM 6198, on line 15.

If PART - III of this form was not completed for this activity last year, and the activity began on or after one of the efective dates for this type of activity, skip lines 11 through 14, check the checkbox on line 15a , enter zero on line 15 and complete lines 16 and line 18.

If PART -III was not completed last year and if the activity began before one of the effective dates complete lines 11 through 14.
For effective dates , Refer instruction PDF of form 6198.

Line 11:
For Partnerships & S corporations enter on line 11 the basis of your investment in the partnership or S corporations at the effective date. If the partnership or S corporation is engaged in both at- risk and not at-risk activiites, 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.
ALL others refer the instructions of form 6198 for amount to enter as of effective date.

Line 12:
Enter the share of amounts such as total losses from years before the effective date for which there were equal or greater amounts not at risk at the year end.
Make all entries on a year by year basis. Include amounts only for years before the effective date. Do not accumalate totals or earlier losses or non recourse debts.

Line 13 :
The program adds line 11 and line 12 and the result obtained enters on this line.

Line 14:
Enter the share of amounts such as Nonrecourse loans outstanding at the effective date used to finance the activity.

Line 15:
If you completed PART - III of Form 6198 for last year check the checkbox on line 15b and enter the amount from line 19b of last year form 6198 on this line.
Donot enter the amount from line 10b of the last year form. Also, do not include on this line any amounts that are not at risk.

Line 16:
Select the checkbox that applies to you. If the taxpayer completed PART - III of FORM 6198 for last year , check the checkbox on line 16b and enter on this line any increase that occured since the end of last tax year.
If the taxpayer completed PART - III of the last year form, "since effective date" means since the end of the last tax year.

Line 17:
The Program adds line 15 and line 16 and enters the result on this line.

Line 18:
Select the checkboc that applies to you. If the taxpayer completed PART - III of form 6198 for last tax year, select the checkbox of line 18b and enter on this line any decreases that occured since the end of the last tax year.

Line 19a:
The program subtracts line 18 from line 17 and enters the result on this line.


Line 19b:
If the amount on line 19b is zero , then you may be subject to recapture rules. Refer publication 925.

PART - IV Deductible Loss:

Line 20:
The program calculates the Larger / maximum of line 10b or line 19b and enters the result on this line.

Line 21:
If the loss on line 5 (disregarding the negative sign) is EQUAL TO or LESS THAN the amount on line 20, the items in PART - I will be reported in full on the return, subject to other limitation such as those for passive activities or capital losses.

If loss on line 5 (disregarding the negative sign) is GREATER THAN the amount on line 20, the deductible loss will be limited to the amount on line 20, subject to other limitations such as those for passive activities or capital losses.

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.

If the amount on line 21 is made up of more than one dedcution 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.

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