Can Section 1256 losses be carried forward like ordinary capital gains losses

[tharp993]

Can Section 1256 losses be carried forward like ordinary capital gains losses? I haven't seen any definitive IRS text that allows this, only discussing the 3 year carryback period.  

If the losses can be carried forward, can they be used to offset regular capital gains or can they only be used against other Section 1256 capital gains? This is the first time I've come across these in my new brokerage (my old one characterized these same types of trades as normal capital/gains losses), and so I want to know what the rules are for things classified as Section 1256 in order to make the best decision on how to characterize these losses as it seems like the jury is in the air on these particular options trades. 

[tagteam]

The carryback provision is an election made on Form 6781.

See https://www.irs.gov/pub/irs-access/f6781_accessible.pdf

Otherwise, you can carry forward losses to the following tax year.

[tharp993]

Does that loss carryforward only apply to future Section 1256 gains or can it be applied to ordinary capital gains? The reason I ask is that when I put my 1256 losses down in turbotax, my overall loss carryforward capital gains figure does not change. 

[tagteam]

How are you entering the transaction in TurboTax? What appears on your Capital Loss Carryforward Worksheet?

You should be getting, absent unusual circumstances, 60/40 treatment (long-term/short-term) capital loss treatment. 

[tharp993]

So basically - I switched my broker from Fidelity to Interactive Brokers. Fidelity used to treat options on ETFs structured as PTPs (ones where you need a K-1) as normal capital gains treatment. but Interactive Brokers has them on the 1099-B but designated as Section 1256. Because of this, I am entering these investments outside of the area for reporting 1099-B figures. Unfortunately, I don't have a capital gain on these Section 1256 investments (which I've read yes they would get 60/40 long/short term cap gains treatment) - I have a capital loss this year. And I'm wondering if this capital loss can only be used to offset future Section 1256 capital gains. I'm not planning on trading options or any of this funky stuff anymore so I will likely never have any Section 1256 capital gains to offset this loss, and so I'm hoping I can use this loss to offset traditional capital gains gotten from stocks in future years (I have both short and long term capital losses this year). Thank you 

[tagteam]

You should be getting 60/40 capital loss treatment which should carry forward (if unused in the current year) to the following tax year. Again, you can check your worksheet in TurboTax to verify.

[tharp993]

OK - so it sounds like you're saying if I have $10,000 of Section 1256 capital losses this year, then for next year - I have $4,000 of short term capital loss carryforward and $6,000 of long term capital loss carryforward? 

I can see now that when I change my section 1256 capital loss carryforward number that it does change the total capital loss figure - but I cant find a way to see the capital loss broken down in TurboTax into short and long term losses to verify that the 60/40 split is happening. When I click on the Capital Loss figure, it doesn't parse it out for me at all

[Mike9241]

I don't know what IAB is doing here's the definition of 1256 contracts

(b)Section 1256 contract defined
(1)In general
For purposes of this section, the term “section 1256 contract” means—
(A)any regulated futures contract,
(B)any foreign currency contract,
(C)any nonequity option,
(D)any dealer equity option, and
(E)any dealer securities futures contract.

(g)Definitions
For purposes of this section—
(1)Regulated futures contracts defined
The term “regulated futures contract” means a contract—
(A)with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market, and
(B)which is traded on or subject to the rules of a qualified board or exchange.

i have never heard of section 1256 applying to options on PTP since they are equity securities. But then there is always that possibility.  best to contact IAB for an explanation

1256 gain/losses are reported on form 6781 and then carried to the applicable section of schedule D.