Tax Treatment of Non-Equity Options (60/40 Marked-to-Market Contracts)

What this video covers

• Which contracts qualify for 60/40 marked-to-market treatment: broad-based index options (10 or more underlying securities), foreign currency options on regulated exchanges, and yield-based (interest rate) options
• Why individual equity options and narrow-based index options are excluded from the 60/40 rule and receive standard short-term capital gains treatment instead
• How the 60/40 split produces a blended maximum federal rate of approximately 26.8%, and why the holding period is completely irrelevant for qualifying contracts
• The December 31 marked-to-market snapshot: why open positions are treated as sold at fair market value, why unrealized gains are taxable, and why cost basis resets on January 1
• Why taxpayers cannot defer gains by holding marked-to-market positions open across tax years, and how exam questions test this specific trap
• How net losses on marked-to-market contracts can be carried back three years against prior gains on the same contract type, unlike regular capital losses that only carry forward
• The specialized tax form requirement for reporting these contracts and the restriction that loss carrybacks only offset prior gains on the exact same marked-to-market contract type