Before you enter your foreign currency transactions, you must determine whether the gain or (loss) is subject to IRC (Internal Revenue
Yes, you report and gain or a loss in the same manner.
Code) 1256 or 988. If you are unsure how to classify your trades, it is best to seek professional tax advice from your broker or a tax attorney.
By default, Cash Forex is subject to IRC 988 rules with ordinary gain or (loss) treatment. However, if you are a trader, you can elect out of IRC 988. This will allow your gains to be treated as IRC 1256 with beneficial 60/40 capital gain treatment. The election out of IRC 988 is an internal election. This means you should document the election in your own records before you make the trades.
IRC 988:
If you did NOT elect out of IRC 988, the gain or (loss) would be subject to IRC 988. You would enter the information on Schedule 1 (Form 1040) Additional Income and Adjustments to Income, Line 8 as an ordinary gain or (loss).
To enter a description and an amount for Schedule 1 (Form 1040), Line 8:
Answers are correct to the best of my ability but do not constitute legal or tax advice.
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