Question
Can I track section 1256 Broad Based Index Options with GainsKeeper?
Answer
Tax treatment for §1256 contracts (which includes options on broad based indexes) is unique. There are two special rules:
Holdings of §1256 contracts are marked to market at the end of each year.
Any gain or loss from §1256 contracts is 60% long-term gain or loss and 40% short-term gain or loss without regard to the actual holding period.
The wash sale rule does not apply to §1256 contracts.
Not all options are treated as §1256 contracts. An option to buy or sell stock or based on the value of a group of stocks that meets the definition of a narrow based index (rather than a broad-based index) under federal securities law is not a §1256 contract. An option based on a broad-based stock index is a §1256 contract. The determination of whether an option is broad-based is complex and based on valuations which are subject to change. GainsKeeper maintains a list of index options that appear to qualify as broad-based given the limited information available to GainsKeeper and has accordingly marked such options as section 1256 contracts. The list is periodically reviewed and updated. However, you should consult your own tax advisor regarding the appropriate §1256 treatment of any option. If your broad based index option does not receive section 1256 treatment please Contact GainsKeeper Support. Gains and losses from section 1256 contracts are reported on Form 6781 (Not the Schedule D).