Understanding at-risk limitations for K-1 losses in ProConnect Tax

This article will help you understand at-risk limitations for K-1 losses and how ProConnect Tax 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 calculate at-risk limitations in the program?

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

1. Go to the Input Return tab.
2. From the left of the screen, select Income and choose Passthrough K-1's.
3. Select the appropriate passthrough K-1 screen from the dropdown menu:
   1. Partnership Info (1065 K-1), or
   2. S-Corp Info (1120S K-1)
4. Click the three vertical dots at the top of the screen and choose At-Risk from the dropdown menu.
5. Locate the Amount at Risk (6198) section.
6. Enter a 1 or 2 in 1=simplified computation, 2=detailed computation (MANDATORY).
   • 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.

Related topics

• Basis Limitations for K-1 Losses
• Calculating the basis limitation for an Individual return
• Basis Limitation Frequently Asked Questions