Section 1256 Contract

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.



comments powered by Disqus
Hot Definitions
  1. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  2. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  3. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  4. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  5. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
  6. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
Trading Center