Form 6198 is the IRS form that applies the at-risk rules of section 465, which limit a loss you can deduct from a business or investment activity to the amount you have at risk in it. You use it to figure the activity's profit or loss for the year, your amount at risk, and the deductible loss. A loss above your amount at risk isn't lost: it carries over to the next year.
Everything below comes from the IRS Instructions for Form 6198 and the form itself, as of October 2026.
What the form works out
| Part | What it figures |
|---|---|
| Part I | The profit or loss from the at-risk activity for the current year |
| Part II (simplified) or Part III (detailed) | Your amount at risk for the current year |
| Part IV | The deductible loss for the current year |
You don't need Part II if you use Part III, which can give a larger amount at risk.
Who files it
Form 6198 is filed by individuals engaged in an at-risk activity, including people filing Schedules C, E and F, as well as estates, trusts and certain closely held C corporations. You file it if, during the tax year, you, a partnership you were a partner in, or an S corporation you were a shareholder in had amounts not at risk invested in an at-risk activity that made a loss.
The at-risk rules apply to losses from activities carried on as a trade or business or for producing income, including holding, producing or distributing films or videotapes, farming, leasing section 1245 property, exploring for or exploiting oil and gas, geothermal deposits, and any other activity not in that list. There's an exception for holding real property placed in service before 1987.
What isn't at risk
- Nonrecourse loans used to finance the activity, acquire property used in it, or acquire your interest in it, unless the loan is secured by your own property not used in the activity.
- Cash, property or borrowed amounts protected against loss by a guarantee, stop-loss agreement or similar arrangement, other than casualty insurance.
- Amounts borrowed from someone with an interest in the activity other than as a creditor, or related to such a person, with some exceptions.
The big exception is qualified nonrecourse financing secured by real property used in holding real property: you're treated as at risk for it, even though no one is personally liable for repayment.
The IRS example of a carryover
This is the insight in the instructions that most people miss. Their example: your 2024 Schedule C showed a $1,500 loss, but the at-risk rules limited the deduction to $500. The other $1,000 isn't gone. You include it on your 2025 Schedule C in Part V, Other Expenses, identified as a prior year loss, and run it through Form 6198 again with the current year's figures. These figures are the instructions' own example, as of October 2026.
Where the at-risk rules sit
- The at-risk limit is worked out on Form 6198, and what it allows is still subject to other limits, such as the passive activity rules on Form 8582.
- File one Form 6198 if your activities fall under the aggregation rules, or a separate form for each activity if they fall under the separation rules.
- For adjusted basis, the instructions point partners to Pub. 541 and S corporation shareholders to the Form 1120-S instructions. For S corporation stock and debt basis, many shareholders also need Form 7203.
Partners and S corporation shareholders
If the activity runs through a partnership or S corporation, the entity gives you the figures on Schedule K-1 or a similar statement, and you complete Form 6198 yourself. Include on Part I the income, gains and losses passed through to you, plus any prior year losses from the activity that the at-risk rules held back. Your amount at risk then starts from your adjusted basis in your interest.
Recapture
Even if Part I shows a profit, the instructions warn you may have recapture income if you received a distribution or had a transaction during the year that reduced your amount at risk to less than zero at year end. Pub. 925 covers the recapture rules. In practice, that means taking cash out of an activity you've used losses from can put income back on your return.
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Filling it in, step by step
- Decide whether you need one form or several, using the aggregation and separation rules.
- Part I: enter the current year income, gains, deductions and losses from the activity, including prior year losses you couldn't deduct because of the at-risk rules.
- Part II or III: work out your amount at risk. Sole proprietors on Schedules C and F don't reduce the adjusted basis line by liabilities.
- For loans in the detailed method, enter the amount of the loan you incurred, not the current balance.
- Part IV: the deductible loss is the smaller of the loss and the amount at risk. Anything left carries over to next year.
The verdict
If you've put borrowed funds that you're not personally liable for into a business or investment that's making losses, expect Form 6198 to cap what you can deduct. It's a timing rule more than a penalty: keep track of the disallowed loss each year so it comes back on the next return, and watch distributions that push your amount at risk below zero. Report the activity itself on the schedule it belongs to, such as Schedule E for rentals and partnerships.
Frequently asked questions
What is Form 6198 used for?
To figure the profit or loss from an at-risk activity, the amount at risk for the year and the deductible loss under the at-risk rules of section 465.
Who has to file Form 6198?
Individuals, estates, trusts and certain closely held C corporations with a loss from an at-risk activity where they, their partnership or S corporation had amounts not at risk invested.
What happens to a loss limited by Form 6198?
It carries over. In the IRS example, a $1,500 Schedule C loss limited to $500 leaves $1,000 to include on the next year's Schedule C as a prior year loss.
Are nonrecourse loans at risk?
Generally no, unless the loan is secured by your own property not used in the activity, or it's qualified nonrecourse financing secured by real property used in holding real property.
Can Form 6198 create income in a profitable year?
Yes. The instructions warn of recapture income if a distribution or transaction reduced your amount at risk to less than zero at the end of the year.
