Your newest client, Smiles PC, is a dental practice providing comprehensive dental services in the Houston area. The corporation is solely owned by Mark W. Nguyen, DDS, and has been set up as an S corporation since its inception five years ago. Nguyen is the only dentist in the practice and works full-time. He also has two full-time dental hygienists, one office manager and one administrative assistant in the office.
At the beginning of the current year, Nguyens stock basis in Smiles PC totaled $30,000. The corporation had $100,000 in outstanding debt at year-end, the result of purchasing expensive dental equipment. The debt is under the name of the corporation but is personally guaranteed by Nguyen. During the current year, Smiles PC sustained a net ordinary loss of $50,000. Nguyen is an employee of the corporation and was paid a salary of $120,000 for the year; he also took a cash distribution $10,000.
Dr. Nguyen has called your office today and would like to know how much of the loss he will be able to deduct on his personal return. He is envisioning a sizable refund as a result of the loss deduction.
Required:
complete Form 6198, At-Risk Limitations, which would be required as part of Dr. Nguyens personal return. You may use the simplified computation.
MUST COMPLETE ENTIRE SHEET FOR GOOD RATING. Thank you
At-Risk Limitations Form 6198 OMB No. 1545-0712 (Rev. December 2020) Department of the Treasury Internal Revenue Service Name(s) shown on return Attach to your tax return. Go to www.irs.gov/Form 6198 for instructions and the latest information. 31 Attachment Sequence No. Identifying number Description of activity (see instructions) 3 9 10b Part Current Year Profit (Loss) From the Activity, including Prior Year Nondeductible Amounts. See instructions. 1 Ordinary income (loss) from the activity (see instructions) 1 2 Gain (loss) from the sale or other disposition of assets used in the activity (or of your interest in the activity) that you are reporting on: a Schedule D 2a b Form 4797 2b c Other form or schedule 2c 3 Other income and gains from the activity, from Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120-S), that were not included on lines 1 through 2c 4 Other deductions and losses from the activity, including investment interest expense allowed from Form 4952, that were not included on lines 1 through 20 4 5 Current year profit (loss) from the activity. Combine lines 1 through 4. See the instructions before completing the rest of this form 5 Part II Simplified Computation of Amount at Risk. See the instructions before completing this part. Adjusted basis (as defined sectior 11) in activity (or in your interest the activity) on the first day of the tax year. Do not enter less than zero 6 7 Increases for the tax year (see instructions). 7 8 Add lines 6 and 7 ... 8 9 Decreases for the tax year (see instructions) 10a Subtract line 9 from line 8 10a b If line 10a is more than zero, enter that amount here and go to line 20 (or complete Part III). Otherwise, enter -- and see Pub. 925 for information on the recapture rules Part III Detailed Computation of Amount at Risk. If you completed Part Ill of Form 6198 for the prior year, see the instructions. 11 Investment in the activity (or in your interest in the activity) at the effective date. Do not enter less than zero 11 12 Increases at effective date 12 Add lines 11 and 12 13 14 Decreases at effective date 14 Amount at risk (check box that applies): a D At effective date. Subtract line 14 from line 13. Do not enter less than zero. b From your prior year Form 6198, line 196. Do not enter the amount from line 10b of 15 your prior year form. 16 Increases since (check box that applies): Effective date bThe end of your prior year 16 17 Add lines 15 and 16 .. 17 18 Decreases since (check box that applies): a Effective date bThe end of your prior year 18 19a Subtract line 18 from line 17 19a b If line 19a is more than zero, enter that amount here and go to line 20. Otherwise, enter -- and see Pub. 925 for information on the recapture rules 19b Part IV Deductible Loss 20 Amount at risk, Enter the larger of line 10b or line 195 20 21 Deductible loss. Enter the smaller of the line 5 loss (treated as a positive number) or line 20. See the instructions to find out how to report any deductible loss and any carryover. 21 Note: If the loss is from a passive activity, see the Instructions for Form 8582, Passive Activity Loss Limitations, or the Instructions for Form 8810, Corporate Passive Activity Loss and Credit Limitations, to find out if the loss is allowed under the passive activity rules. If only part of the loss is subject to the passive activity loss rules, report only that part on Form 8582 or Form 8810, whichever applies. For Paperwork Reduction Act Notice, see the Instructions for Form 6198. Cat. No. 50012Y Form 6198 (Rev. 12-2020) 13 15 a At-Risk Limitations Form 6198 OMB No. 1545-0712 (Rev. December 2020) Department of the Treasury Internal Revenue Service Name(s) shown on return Attach to your tax return. Go to www.irs.gov/Form 6198 for instructions and the latest information. 31 Attachment Sequence No. Identifying number Description of activity (see instructions) 3 9 10b Part Current Year Profit (Loss) From the Activity, including Prior Year Nondeductible Amounts. See instructions. 1 Ordinary income (loss) from the activity (see instructions) 1 2 Gain (loss) from the sale or other disposition of assets used in the activity (or of your interest in the activity) that you are reporting on: a Schedule D 2a b Form 4797 2b c Other form or schedule 2c 3 Other income and gains from the activity, from Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120-S), that were not included on lines 1 through 2c 4 Other deductions and losses from the activity, including investment interest expense allowed from Form 4952, that were not included on lines 1 through 20 4 5 Current year profit (loss) from the activity. Combine lines 1 through 4. See the instructions before completing the rest of this form 5 Part II Simplified Computation of Amount at Risk. See the instructions before completing this part. Adjusted basis (as defined sectior 11) in activity (or in your interest the activity) on the first day of the tax year. Do not enter less than zero 6 7 Increases for the tax year (see instructions). 7 8 Add lines 6 and 7 ... 8 9 Decreases for the tax year (see instructions) 10a Subtract line 9 from line 8 10a b If line 10a is more than zero, enter that amount here and go to line 20 (or complete Part III). Otherwise, enter -- and see Pub. 925 for information on the recapture rules Part III Detailed Computation of Amount at Risk. If you completed Part Ill of Form 6198 for the prior year, see the instructions. 11 Investment in the activity (or in your interest in the activity) at the effective date. Do not enter less than zero 11 12 Increases at effective date 12 Add lines 11 and 12 13 14 Decreases at effective date 14 Amount at risk (check box that applies): a D At effective date. Subtract line 14 from line 13. Do not enter less than zero. b From your prior year Form 6198, line 196. Do not enter the amount from line 10b of 15 your prior year form. 16 Increases since (check box that applies): Effective date bThe end of your prior year 16 17 Add lines 15 and 16 .. 17 18 Decreases since (check box that applies): a Effective date bThe end of your prior year 18 19a Subtract line 18 from line 17 19a b If line 19a is more than zero, enter that amount here and go to line 20. Otherwise, enter -- and see Pub. 925 for information on the recapture rules 19b Part IV Deductible Loss 20 Amount at risk, Enter the larger of line 10b or line 195 20 21 Deductible loss. Enter the smaller of the line 5 loss (treated as a positive number) or line 20. See the instructions to find out how to report any deductible loss and any carryover. 21 Note: If the loss is from a passive activity, see the Instructions for Form 8582, Passive Activity Loss Limitations, or the Instructions for Form 8810, Corporate Passive Activity Loss and Credit Limitations, to find out if the loss is allowed under the passive activity rules. If only part of the loss is subject to the passive activity loss rules, report only that part on Form 8582 or Form 8810, whichever applies. For Paperwork Reduction Act Notice, see the Instructions for Form 6198. Cat. No. 50012Y Form 6198 (Rev. 12-2020) 13 15 a
