At Risk Limitations

[Gretel]

I am confused and not familiar anyway with form 6198, please help.

Current year activity on K-1 (1065) shows profit from 1231 gains for limited partner, which brings his capital acct. to a negative of $1,000 and will allow all prior year losses since total income is higher than total losses.

Since he still has 0 basis no loss should be allowed but on form 6198 I cannot find a place to enter a "negative basis". If I start with 0 basis (that is what the instructions for line #6 say) than all losses will be allowed.

[Bees Knees]

You start with zero basis. You then add previous year suspended losses to current year income or loss. Then complete the rest of the form to see how much, if any is still suspended.

Example. Previous year suspended losses equals $5,000.

Basis at beginning of year is zero.

Current year income equals $4,000.

Instructions for Form 6198 say to deduct the previous year suspended loss from current year income or loss before starting on Form 6198. That means line 1 of Form 6198 for the current year is negative $1,000 (negative $5,000 plus $4,000).

Since basis is zero, the negative $1,000 on line 1 of Form 6198 will be suspended and deducted against next year's income or loss from the activity.

[Gretel]

Thanks, Bees. This is what I did, only current year income is higher than previous year losses. Until now I thought capital account has to be above zero before t/p is considered at risk. So, having basis must then also include current year income independent of what capital account shows (I know capital acct. is not equal to basis, only sometimes). I think understand the whole concept a little better now.