TurboTax / Tax Calculators & Tips / All Tax Guides / Investments and Taxes / What Is Form 6198: At-Risk Limitations

What Is Form 6198: At-Risk Limitations

Updated for Tax Year 2015


Most investors go into business expecting to make a profit. But, when business expenses exceed profits and a loss occurs, a tax deduction may be the only silver lining. The Internal Revenue Service (IRS) usually allows taxpayers to deduct money spent on a business up to a certain limit. Tax form 6198 helps you to figure out the amount you can deduct when part of your investment falls into the "at-risk" category.

What are at-risk limitations?

Woman with her feet up on the desk

A tax deduction reduces your overall tax bill, potentially lessening losses in a business venture. Items such as insurance, property repairs and charitable donations can often be deductible at tax time if they helped you in the course of your business.

However, not all of the money you invest in a business is deductible, due to IRS at-risk limitations. 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.

Form 6198 breakdown

To determine the maximum amount you can deduct after suffering a business loss in the tax year, use Form 6198. The four-section form is a worksheet that allows you to:

  • Determine your losses for the current year
  • Calculate the amount that was at risk in the business
  • Compute any at-risk deductions from previous years that you can apply in the current year
  • Figure the total allowable deduction you can take for the current tax year

File a separate Form 6198 for each business activity, unless the businesses are S Corporations, in which case the IRS allows you to aggregate all of your investments on a single form.

You are required to file Form 6198 with your tax return if you experience a loss in an income-producing activity deemed by the IRS as at risk. Most business activities are subject to the at-risk limitations.

Reason for at-risk rules

Before the IRS implemented at-risk limitations, investors in certain business activities — especially real estate — stood to profit more from losses and tax deductions than from investments gains.

To prevent investors from benefiting from purposeful bad business deals and to promote investments in credible business ventures, Congress acted to limit the deductions investors could take when facing business losses.

A real-world real estate scenario

Real estate investment is a type of business in which you can invest as little or as much money as you'd like, due to mortgage financing options and nonrecourse loans.

Nonrecourse financing pledges a home as collateral, meaning the lender can foreclose on your home if you don't make the payments, but it can't come after you for any uncollected losses. Even though you aren't personally liable for a nonrecourse debt, it still falls under at-risk limits if the property secures the debt.

Got investments?

From stocks and bonds to rental income, TurboTax Premier helps you get your taxes done right

For only $79.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • Filing Deadline: IRS filing deadline for tax year 2015 is April 18, 2016 (except for residents of Massachusetts or Maine, where the IRS filing deadline for tax year 2015 is April 19, 2016).
  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with efile and direct deposit; tax refund timeframes will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except the TurboTax Home & Business/QuickBooks Self-Employed bundle offers.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice service is available via phone for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2014 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.