You'll need to use Form 6781: Gains and Losses from Section 1256 Contracts and Straddles.
To view the form, under the Federal tab, type form 6781 in the search box.
Then Jump to Form 6781 and answer the questions.
About form 6781
Under normal circumstances, if you buy a stock at $100 per share and hold it for 10 years, you don't have to report any gains or losses until you sell it. With Section 1256 investments, IRS requires you to report actual or would-be gains and losses through the end of the year on Form 6781. The basics of Section 1256 investments are as follows:
- You report gains and losses—as a result of an actual sale or the fair market value—through December 31 of each year.
- You complete Form 6781 even if you keep the investments.
- The process of assigning fair market value to investments you continue to hold, and don’t sell, is called “mark to market.”
- For tax purposes, every Section 1256 gain or loss is treated as being 60% long term and 40% short term, no matter how long you own it.
- Long-term gains, defined as those held for longer than one year, generally have more advantageous tax characteristics than short-term gains, which are held for one year or less.
Using Form 6781
Completing the form is similar to reporting any type of investment. Here’s the breakdown:
- Part I: Report your Section 1256 investment gains and losses at either the actual price at which you sold these investments or the "mark-to-market" price established on December 31.
- Part II: Report the gains and losses on your straddles, with losses reported in Section A and gains calculated in Section B.
- Part III: Meant for any unrecognized gains you have on positions held at the end of the tax year, but you only have to complete it if you have a recognized loss on a position.
Here is a TurboTax article about Section 1256 Contracts and Straddles.
