This form is used to report gains and losses from regulated futures (sec. 1256) contracts and from straddles. Gains and losses for these positions are calculated differently than for ordinary securities. The net gains and losses calculated on this form will be carried automatically to Schedule D.
Capital gains from sec. 1256 contracts are taxed regardless of whether or not you sold the contract during the tax year. Gain is calculated using the sale price or the price at the end of the year if the contract was not sold. Sec. 1256 gains and losses are allocated as 40% short-term and 60% long-term, regardless of the actual holding period.
If you have a net sec. 1256 loss, you may carry back that loss on line 6 to offset sec. 1256 gains up to three years back. You will, however, have to amend the earlier year's return to do so. We do not allow you to make an entry on line 6 greater than the loss on line 5.
Gains and losses from positions in a straddle (offsetting positions on the same security or commodity) may be calculated in a number of ways. The election boxes at the top of this form list three methods; you are not restricted to any one method, as long as you do not use different methods for positions in the same straddle.
You must calculate the gain or loss from a position in a straddle and enter it in Part II. However, if you take a loss on a position, you must subtract any unrecognized gain on any offsetting position that you hold at the end of the year. We'll perform this calculation for you.
The rules for designated gains and losses from straddles as long-term or short-term are complex, and we do not do them. You must, therefore, manually enter the short-term and long-term losses on lines 11a and 11b, respectively, and the short-term and long-term gains on lines 13a and 13b, respectively. These lines are carried to Schedule D, not the entries on the table.
The entries on this part do not affect your tax. They are memorandum entries for unrecognized gains to help you and the IRS keep track of unrecognized gains that may be used to reduce your straddle losses.