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.

BREAKING DOWN '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.

  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. Option

    A financial derivative that represents a contract sold by one ...
  4. Futures

    A financial contract obligating the buyer to purchase an asset ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Mark To Market - MTM

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