Section 1256 Contract

AAA

DEFINITION of 'Section 1256 Contract'

A type of investment defined by the Internal Revenue Code (IRC) as a regulated futures contract, foreign currency contract, non-equity option, dealer equity option or dealer securities futures contract. Each contract held by a taxpayer at the end of the tax year is treated as if it was sold for its fair market value, and gains or losses are treated as either short-term or long-term capital gains. The Internal Revenue Service (IRS) is responsible for implementing the IRC.

INVESTOPEDIA EXPLAINS 'Section 1256 Contract'

Investors reports gains and losses for Section 1256 Contract investments by using Form 6781. Hedging transactions are treated differently.


More specific information can be found in Subtitle A (Income Taxes), Chapter 1 (Normal Taxes and Surtaxes), Subchapter P (Capital Gains and Losses), Part IV (Special Rules for Determining Capital Gains and Losses) of the Internal Revenue Code.

RELATED TERMS
  1. Form 6781: Gains And Losses From ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  2. Internal Revenue Code - IRC

    The comprehensive set of tax laws created by the Internat Revenue ...
  3. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  4. Futures

    A financial contract obligating the buyer to purchase an asset ...
  5. Mark To Market - MTM

    1. A measure of the fair value of accounts that can change over ...
  6. Option

    A financial derivative that represents a contract sold by one ...
Related Articles
  1. Stock Options: What's Price Got To Do ...
    Options & Futures

    Stock Options: What's Price Got To Do ...

  2. How The Straddle Rule Creates Tax Opportunities ...
    Options & Futures

    How The Straddle Rule Creates Tax Opportunities ...

  3. Tips For Getting Into Futures Trading
    Active Trading

    Tips For Getting Into Futures Trading

  4. Mark-To-Market: Tool Or Trouble?
    Bonds & Fixed Income

    Mark-To-Market: Tool Or Trouble?

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center