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?

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center