Form 6198: At-Risk Limits on Losses, Explained

Form 6198 is titled At-Risk Limitations. You use it to figure three things: the profit or loss from an at-risk activity for the year (Part I), the amount you have at risk (Part II or Part III), and the deductible loss (Part IV). The current revision is dated November 2025. IRS: Form 6198 (Rev. November 2025)

What the at-risk rules do

The at-risk rules in section 465 limit the loss you can deduct to the amount you have at risk. The rules apply to losses from activities you carry on as a trade or business or for the production of income. The IRS instructions list six groups of activities. They include motion picture films, equipment leasing, oil and gas, geothermal deposits, and any other activity not in the first five groups. IRS: Instructions for Form 6198 (Rev. November 2025)

Who must file

Individuals file Form 6198, including people who file Schedule C, E, or F. Estates, trusts, and certain closely held C corporations also file. You must file if, during the year, you, a partnership you were in, or an S corporation you owned shares in had amounts not at risk invested in an at-risk activity that had a loss. IRS: Instructions for Form 6198 (Rev. November 2025)

Amounts that are not at risk

Nonrecourse loans used to finance the activity, unless the loan is secured by your own property that is not used in the activity. Qualified nonrecourse financing on real property is a special case.
Cash or property protected against loss by a stop-loss agreement or a similar arrangement, including a promise by another person to cover the loss. Casualty insurance and insurance against tort liability are excluded from this rule.
Amounts borrowed from a person who has an interest in the activity other than as a creditor, or who is related to such a person.

The instructions list more categories, including some contributed amounts. Read the full list before you rely on this summary. IRS: Instructions for Form 6198 (Rev. November 2025)

Part II or Part III

Part II is a simplified method. You can use it only if you know your adjusted basis in the activity, or in your interest in the partnership's or S corporation's activity. Part III is a longer method that may allow a larger amount at risk. If you complete Part III, you do not need to complete Part II. IRS: Instructions for Form 6198 (Rev. November 2025)

Passive losses come next

Form 6198 does not finish the job. If a loss is from a passive activity, the form says to check the Form 8582 instructions to find out whether the loss is allowed. The passive rules are a separate test. Read passive activity losses basics for that step.

Records to keep

Keep the adjusted basis records for each activity, the loan papers that show whether a loan is recourse or nonrecourse, and each year's Form 6198. Part III, line 15 has a checkbox that uses the amount from your prior year's Form 6198, line 19b, so the old forms matter. IRS: Form 6198 (Rev. November 2025)

Steps to follow

Check whether an activity had a loss, and whether any of your money in it is not at risk.
Decide whether Part II or Part III fits the records you have.
Complete Parts I through IV to find the deductible loss.
Follow the instructions for reporting any deductible loss and any carryover. Check the passive rules too.

Read the capital loss limit and carryover for how a loss can be carried forward. Read rental income and Schedule E basics if the activity is a rental.

General information, not advice for your situation.

Sources: Sources: IRS, Form 6198 (Rev. November 2025), At-Risk Limitations (https://www.irs.gov/pub/irs-pdf/f6198.pdf); IRS, Instructions for Form 6198 (Rev. November 2025) (https://www.irs.gov/pub/irs-pdf/i6198.pdf) This is general information, not advice about your specific return.

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