Whether you are filing taxes the old-fashioned way using paper forms or using tax software, you'll want to keep in mind that you file your gain or loss from Section 1256 Contracts differently from your equity and equity options trades.
- Tax Burst Video
- What are Section 1256 Contracts?
- How do I know if I traded any Section 1256 Contracts?
- How to Report your Gain/Loss from Section 1256 Contracts
- How come Box 8, 9, and 10 do not equal line 11?
Tax Burst Video
What are Section 1256 Contracts?
Futures, Options on Futures, and Cash-Settled Index Options
Section 1256 contracts include futures, options on futures, and cash-settled index options such as SPX, NDX, RUT, and VIX. Unlike equity and equity options (securities), Section 1256 products are subject to special 60/40 tax treatment. To learn more about Section 1256's 60/40 tax treatment, please click here.
How do I know if I traded any Section 1256 Contracts?
Check your Tax Forms in the Tax Center
Cash-Settled Index Options
You can quickly determine if you traded any cash-settled index options (broad-based indices) by referring to the Tax Reporting Statement page of your Consolidated Form 1099. Customers that traded any cash-settled index options will see a gain or loss listed in the Regulated Future Contract & Section 1256 Options section listed. Generally, the number you need to report is your Aggregate Profit or Loss, as illustrated below.
Some cash-settled index options, also known as broad-based index options, include: DJX, NDX, NQX, OEX, RUI, RUT, SPX, VIX, XEO, and XSP.
Futures and Options on Futures
Customers that traded any futures or options on futures will receive a Form 1099-B Futures, also known as a Substitute 1099 Statement. Your Futures 1099-B will list your Aggregate Profit or Loss from futures trading. Similar to cash-settled index option, the number you need to report is your Aggregate Profit or Loss (line 11), as illustrated below.
How to Report your Gain/Loss from Section 1256 Contracts
Tax Software (TurboTax, H&R Block, and TaxAct)
Instructions to report your gain or loss using TurboTax, H&R Block, and Tax Act are linked below:
Filing Manually (on Paper)
Customer filing manually reporting their Gain or Loss from Section 1256 products must use Form 6781: Contracts and Straddles. To learn more about Form 6781, please visit the IRS' Form 6781 Information site by clicking here.
How come Box 8, 9, and 10 do not equal line 11?
Prevents double-counting from the previous year (box 9)
Since section 1256 products are subject to mark-to-market reporting, any open positions held from one calendar year to another are marked-to-market. As a result, if you carry an unrealized position from the previous tax year (Box 9), then you must subtract the gain or loss that you carried over to avoid double-counting.
In short, you can back into your Aggregate Profit or Loss (Line 11) using the following equation: (Box 8 + Box 10) - (Box 9) = Box 11. (The term Box is interchangeable with Line.)