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What is a Section 1256 Contract?

According to IRS publication 550 page 39:

A Section 1256 contract is any:

  1. Regulated futures contract
  2. Foreign currency contract
  3. Non-equity option

And on page 40 under the Non-equity option heading:

Non-equity options include debt options, commodity futures options, currency options, and broad-based stock index options. A broad-based stock index is based upon the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index).

Therefore, by definition, any and all of these trading instruments are "marked to market", or priced to fair market value (FMV), on the last business day of the year for capital gains and losses calculation.  Please do not confuse these with the IRS section 475(f) " mark to market" accounting election for traders in securities.

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Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Armen Computing Ltd. makes no investment recommendations and does not provide financial, tax or legal advice. Please consult your tax advisor or accountant to discuss your specific situation. You are solely responsible for your investment and tax reporting decisions, and you should carefully evaluate all information delivered to you by Armen Computing Ltd. and TradeLog. Not all information may be appropriate for all investors.