This article will help you understand at-risk limitations for K-1 losses and how Lacerte calculates allowable loss amounts. See the related topics at the end of this article for more information.

## What are at-risk limitations?

The at-risk limitation is the second of three limitations applied to income-producing activities. The losses must apply in the order listed:

- Basis limit
- At-risk limit
- Passive limit

The at-risk limit is similar to the basis limit in that one of the major components of the amount at-risk is the amount invested in the activity. 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.

## How are at-risk limitations calculated?

The at-risk limits are computed on **Form 6198**. If partner or shareholder distributions cause the amount at-risk to become negative, gain is recognized to the extent losses have been allowed by at-risk in prior years and have not already been recaptured. The amount of at-risk recapture is carried over to following year as a deduction, and will be allowed as a deduction in the following year if the amount at-risk increases. (**IRC 465(d)**).

## How do I generate Form 6198 for at-risk limitations?

### Follow these steps to calculate at-risk limitations for a K-1 activity:

- Go to
**Screen 20, Passthrough K-1's**. - Select the appropriate
**Partnership Information**or**S Corporation Information**section from the left navigation. - Select
**Amount at Risk (6198)**from the lower-left**Sections**list. - Enter a 1 or 2 in
**1=simplified computation, 2=detailed computation (MANDATORY)**.- This entry is required to generate Form 6198, At-Risk Limitations.
- Enter 1 to complete Part II of form 6198. Part II may only be completed when you know the adjusted basis in the K-1 activity.
- Enter 2 to complete Part III of form 6198. Part III is a longer method of figuring your amount at-risk and may allow a larger amount at-risk.

- If you're using the simplified computation, enter the
**Adjusted basis at beginning of year**. No other entries are needed. - If you're using the detailed computation, leave
**Adjusted basis at beginning of year**blank. Then, scroll down to the**Detailed Computation (6198 Part III)**subsection and complete any applicable fields.

Lacerte will use your entries to generate the **Federal At-Risk Limitation Worksheets** and complete Form 6198 when applicable. If the losses are limited by at-risk rules, the program will proforma (or roll over) the amounts to the next year's return.

## Program details

Lacerte will determine the amount at risk when indicated in the following activity screens: