I appreciate the response and while some of my questions are answered, I still need some clarifications.
It appears I am misinterpreting the Pub 550 statement "The loss is carried to the earliest carryback year first".
My initial thought was which year was soonest to the current year which would be 2021. I do see if you look at the 3 available years (2019, 2020 & 2021), 2019 is the earliest year so that makes sense.
I do see the inconsistency in loss calculations between form 6781 instructions and Pub 550 as it is silent on the $3K.
Per Form 6781 instructions, "Your net section 1256 contracts loss is the smaller of:
• The excess of your losses from section 1256 contracts over the total of (a) your gains from section 1256 contracts plus (b) $3,000 ($1,500 if married filing separately), or
• The total you would figure as your short-term and long-term capital loss carryovers to 2023 if line 6 of Form 6781 were zero. Use a separate Schedule D (Form 1040) and Capital Loss Carryover Worksheet (in Pub. 550) to figure this amount. "
In my case it appears it doesn't really matter how the loss is calculated as I am limited to how much I can carry back to prior 3 years due to "the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year" rule. My loss is too big and will have to carry a portion forward to 2023 regardless. For future reference if the numbers are closer together, what source is the gold standard for figuring this out since there are inconsistencies among the sources?
What does make a difference in my case is the max amount of loss I can carry back to 2021 since 2019 & 2020 have reported loss on schedule D line 16 for both years. Per 1256 instructions 'The amount you can carry back to any prior year is limited to the smaller of:
• The gain, if any, that you would report on line 16 of Schedule D (Form 1040) for that carryback year if only gains and losses from section 1256 contracts were taken into account; or
• The gain, if any, reported on line 16 of Schedule D (Form 1040) for that carryback year.
I agree in I don't see any difference in the amount that would be calculated in the 1st bullet vs line 5 of form 6781. In my case my 2021 tax return reflects a higher amount on line 16 of schedule D than line 5 of form 6781 so it appears I am limited to carry the loss from 2022 to only the amount reflected on line 4 of form 6781. For example if my line 16 on schedule D in 2021 was $130K and line 5 of Form 6781 was $100K, I can only carry back $100K from 1256 contracts loss in 2022, correct? This will result in a wash for the section 1256 contracts gain reported in 2021 but still reflect small capital gain on line 16 of Schedule D due to other equity capital gains reported.
Which process is better to use to report the section 1256 contracts loss carryback to 2021? Amend the 2021 tax return or file Form 1045? Are there any advantages/disadvantages to either process? Can both methods be filed in TurboTax without having to mail anything?
Is there any options to treat section 1256 contracts losses that have to be carried forward other than the typical limitation of deducting $3K loss per year for MFJ returns?
