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

What this video covers

• Which contracts qualify for Internal Revenue Code (IRC) Section 1256 treatment: broad-based index options, foreign currency options, and yield-based options (and which do NOT, like individual equity options and narrow-based indexes)
• The 60/40 split: 60% long-term capital gain or loss and 40% short-term, regardless of actual holding period
• Why the blended top-bracket rate works out to roughly 26.8% versus 37% on ordinary short-term gains
• The mark-to-market rule: open positions on December 31 are treated as sold at fair market value, and the year-end value becomes the new cost basis
• Why you cannot defer gains by holding Section 1256 positions across tax years
• The three-year loss carryback, reported on Form 6781, and why it only offsets prior gains on the same type of contract
• The classic Series 7 trap: spotting an individual stock ticker (like IBM or AAPL) inside a question that sounds like it wants 60/40 treatment