Question: What does "Section 1256 contract net losses can be carried back three years" mean?

[Anantara]

Thanks, Very helpful

I did file the form 1045 after selecting D on form 6781 in my 2022 tax return. My quetion is how do I get the state tax refund.  I have TT desktop. 

[john9yao]

Besides filing the amended Fed tax return, you will also file the amended state tax return to get state refund.

[Anantara]

Thanks but in reading the instructions it appears that I do not need to file an amended federal tax return if I am filing a form 1045 - its one or the other.  This is what the instructions say

"  Individuals can claim a refund by filing Form 1040-X, Amended U.S. Individual Income Tax Return, instead of Form 1045."

What I cant figure out is how to do an amendment to the state tax return or more specifically to calculate  carryback on state tax return by using TT.

[DaveF1006]

To clarify, what state?

[Anantara]

The state is California

[MonikaK1]

Section 1256 contracts are taxed differently than equity option contracts.  Section 1256 contracts have lower 60/40 capital gains tax rates, which means 60% is subject to lower long-term capital gains rates, and 40% is taxed as short-term capital gains using the ordinary rate.  Your other short-term losses will be added to the Section 1256 short-term losses and the same would apply for your long-term losses.  TurboTax will do the calculations for you.   

There is a Section 1256 loss carryback election available. If eligible, rather than use the 1256 loss in the current year, you may deduct 1256 losses on an amended prior-year tax return; however, the carryback loss can only be applied against Section 1256 gains. Thus, if you don't have any 1256 gains from the prior year, then your only option is to include the loss this year and if you have any losses left over, then carry forward the loss to the next tax year.  

See this TurboTax tips article for more information, and IRS Form 6781 with instructions for Box D. Net Section 1256 Contracts Loss Election.

See this thread for another discussion of this issue.