How to enter Section 1256 Option Contracts

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.

to file this correctly,

do not check any of the boxes.

Line 11 is entered . TurboTax provides two boxes Gain and Loss.

enter the amount on line 11 in the proper box.

(you must know if you had a gain or loss, right?)

For description, enter

"<broker>'s 1099-B"

That is all.

Note: This applies to TurboTax CD/Download, TurboTax Online.

I've never used TurboTax Business.

I'm using TurboTax Business and trying to file a partnership return where I traded options on the SPX.  IMHO TT makes this much harder than it has to be. 

Why not just allow us to enter what's on the 1099-DIV?

Sorry - it's actually 1099-B.

Hello,

i still cannot enter the Section 1256 gains from the broker.  They did not download in the import.  When i attempt to go directly to Form 6781 it sends me to Schedule E.  Could someone set up a link on how to get for Form 6781?

Thank You!!!

Thank you.  Your response was very helpful,

God bless you for sharing!!!

What was the response...I'm having the same issue?

figured it out...thanks for being tip of the sword

Having a similiar issue - what was the resolution?

IMO it is not resolved.  The way 1256 gains and losses is entered in TTB is very confusing and not intuitive at all.  I wish we could get someone at Intuit's attention about this.

Hi berad,

Could you share the solution?

Thank You!!!

Hi Jim4AU,

Did you ever figure out how to enter the 1256?

Thanks for your kindness

A couple of weeks ago I was able to speak with someone at Intuit about the difficulty entering Section 1256 option trades in Turbotax Business.  They asked if I could open the tax return and show them via online meeting the details of the problem.  I didn't have time to do so that day and haven't since.  I'm going to try to call them again next week and I'll post here after I talk with them.

---

@Jim4AU wrote:

I'm going to try to call them again next week and I'll post here after I talk with them.

---

How are you entering the transaction now in TurboTax Business. 

Are you using Forms Mode (I have to presume you are)? What, precisely, is the main issue you are facing?

I'm not using "Forms Mode".  In the interview, it asks if you have options gains or losses.  I did and entered those.  Then you're asked if you have 1256 gains or losses.  Wait, I just entered those.  It could be a lot clearer.  Also, all the gains hit the K1 as short term, not 60/40 split between short and long.  That needs to be addressed.

If I am not mistaken, I believe you need to enter these types of transactions in Forms Mode and, there, on Schedule K of your 1065. The result should be passed through to your partners on their K-1s (Line 11 with a C code). A Form 6781 should also be included in the return package.

---

@Jim4AU wrote:

.....all the gains hit the K1 as short term, not 60/40 split between short and long.  That needs to be addressed.

---

No, it actually does not need to be addressed. The net gain should appear on Line 11 (C code) of your K-1s. When the partners input the figure on Line 11 (C code) into their individual income tax return, that figure will wind up being transferred to Form 6781 (in each partner's individual income tax return).

Yes, actually it does need to be addressed.  The figure shows up on line 8 of the K1, all as short term gain - not split between long and short term gain.

If you trade futures, your broker supplies line 8-11, usually on  a separate 1099-B, since it a separate clearing operation.

Only Line 11 has to be entered. See my post on this thread earlier.

So to confirm, is the amount from box 11 already included in the amount listed in 1d (proceeds)? I am using the import feature, and it is not clear if the 1256 amounts are automatically being incorporated.

Thank you!

only you can confirm that.

Always print a copy of your completed tax return for your records, and review it carefully before e-Filing.
You will need it if you are audited by the IRS, or to amend if a TurboTax update changes your return or for any other reason,

AND, to find your AGI next year.

On 03/23/22 I spoke with 2 different reps at Intuit about this problem.  Both reps agreed that it should be addressed and promised to escalate the issue, saying I should hear back in about 1 week.  As of today (04/29/22) I've heard nothing - no call and no email.  I tried calling but cannot get through the bots.

TT should be splitting the gains between short and long term.  The fact that it isn't means  you're paying too much tax.  Maybe Intuit doesn't want to address it because it will be a legal issue for them?

I guess TT still hasn't addressed this. I recieved a 1099-B for hedging grain commodies and can't link that income to my Sch F.

According to IRS instructions, Schedule F is used for profit and loss from farming. All income reported on 1099 B is investment income for hedging grain commodities and not considered Farm income therefore there is no discernable link between a 1099B and Schedule F. 

@clairbender