1256 futures contracts tax related question

Discussion in 'Taxes and Accounting' started by sammybea, Mar 2, 2020.

  1. If you have a 1256 futures loss, can you deduct a portion of that against long term gains (that are not futures related)?
  2. Yes. For stocks/options (except index options) it is determined by holding period. For 1256, 60% LT / 40% ST. They are fungible against each other
  3. bone

    bone ET Sponsor

    Be very careful about that - the IRS has some specific rules about 1256 securities and from my experience most accountants are NOT knowledgeable enough about MTM accounting particulars especially when it comes to offsetting positions. The internet is the last place you want to ask about tax advice.
    dealmaker likes this.
  4. @bone true I am not a tax pro either and that disclaimer apply. I just stick in my futures brokerage tax form in Turbotax and it calculates it like this. Just like I said it does. I am not sure what offsetting position your are referring to, but probably that's part of the equities side of the calculation, taking into account wash sales and what not. All I am saying is after one is done calculating the equities and futures side separately, they can be offset against each other (the ST & LT part). At least, that's what my understanding is, and that's what Turbotax is doing for me since forever, and I am yet to hear from IRS with any objections
  5. bone

    bone ET Sponsor

    I urge caution because the OP stated that he wanted to offset against a security that "was not futures related" (his words). The IRS has a very specific list of 1256 approved securities. You never got flagged because all of your positions - even offsets, were 1256 approved (as they were provided by your futures brokerage). :thumbsup:
  6. I assume that OP's "that are not futures related" meant they are from equities side. And I have offset (or rather saw Turbotax doing it on my behalf) LT/ ST from futures side with LT / ST from equities side. Maybe it's wrong. I don't know
  7. speedo


    It's been my understanding that 1256 is for futures trades exclusively. I have trader status but file 1256 as I only trade futures. I would ask the question of a trader tax pro like Bob Green.
    bone likes this.
  8. tiddlywinks


    The short answer is...

    Form 6781 (for 1256 reporting)...
    Line 8 feeds into Line 4 of Schedule D or onto 8949... this is short term gain/loss
    Line 9 feeds into Line 11 of Schedule D or onto 8949... this is long terms gain/loss.

    Consult a trader tax professional for your particular situation.
    MoreLeverage and newwurldmn like this.
  9. bone

    bone ET Sponsor

    Operative term for the OP being in his situation long term gain for securities that are not approved by IRS for blended capital gains treatment.

    A long time ago, I personally had an accountant "F" this up and I was audited. She said she could do it and I took her word for it. Subsequently when I got the dreaded IRS letter I got a few referrals from my futures broker for accountants who knew what the hell they were doing with futures contracts and offsets. On the advice of my new accountant who was really well versed with futures offsets - I simply wrote a check to the IRS for what they were asking for. Point being, I really didn't want the IRS combing through years of tax returns during the course of a contested hearing.


    Trade Theory and TooEffingOld like this.
  10. Right, and on Schedule D it just wants to know about ST / LT. There is nothing that says put equities ST here and 1256 ST there (and same for LT). In Schedule D, ST is ST, and LT is LT. And Turbotax happily nets all ST and all LT in two groups, and done.

    But yeah. If Bone got IRS questions, then well. I don't know. Not a tax pro. I will just leave it there and keep doing it the way Turbotax does it. I do believe if IRS questions it, I can point finger at Turbotax (with their correctness guarantee). We will see how good that guarantee is. I hope to never find out
    #10     Mar 2, 2020