Get 1999 Instructions For Form 6198 At-risk Limitations Section References Are To The Internal Revenue

The at-risk rules prevent taxpayers from deducting more than their actual stake in a business. This usually means that for tax purposes, only money you're personally liable for is considered "at risk," and, therefore, tax deductible.

At-Risk Limits. Generally, your deductions cannot exceed the amount you have at risk. Roughly, an amount at risk is an amount you invested and could lose. An amount not at risk exists when there is a part of your investment basis that you are protected from losing.

In general, the at-risk rules apply to all trade or business or production of income activities. The income or loss of activities is treated separately or aggregated under special rules. Exceptions to the application of the at-risk rules are provided for equipment leasing activities of closely held corporations.

Example: Unused Losses Due To At-Risk Limitations May Be Carried Forward. You invest $30,000 in a partnership, but suffer $50,000 of your share of the partnership's losses in the 1st year. For the 1st year, you can only deduct your initial investment. However, your suspended loss of $20,000 can be carried forward.

The at-risk rules place a limit on the amount you can deduct as losses from activities. Generally, any loss from an activity (such as a rental) subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year.

Use Form 6198 to figure: The profit (loss) from an at-risk activity for the current year. The amount at risk for the current year. The deductible loss for the current year.

Under the basis limitation, losses are limited to the amount invested in the activity. However, under the at-risk limitation, losses are limited to the amount an investor actually put at-risk. This can differ from the amount invested due to loan guarantees, stop-loss agreements, or nonrecourse loans.