Turbotax won't allow negative numbers on form 6781 part III

[bradleyt]

I have a short (-1 contract) position in the Russell 2000 futures. I opened it at 1899.1 and it closed the year at 1770.9. So I ended the year with an unrealized gain of 128.2 points and at $50 per point that is $6,410. My question is how do I report this on form 6781 part III since Turbotax won't allow me to enter negative numbers for fair market value and cost basis. 

[fanfare]

A) Part III records Gains only. Since you have a Loss, column (e) will be zero.

In any case,  fair market value and cost basis must be positive not negative.

B) Part III is optional and is not part of your tax calculation, It is for your records. 

You can leave it empty.

@bradleyt 

[bradleyt]

I don't have a loss, I have a gain. Fair market value was lower than cost basis because this was a short position. In other words I sold one contract at the higher price. At the end of the year, the contract had come down in value to the lower price. Because this was a short (bearish) bet, I made a gain as noted.

According to the instructions for form 6781, part III is not stated as optional. So I'm unclear why you believe it is. I don't think the fact that it's marked as Memo Only makes it optional. I also don't think that the fact that it's not part of the calculation necessarily makes it optional either. Do you have reference you can point me to showing that it's optional? 

[fanfare]

"I don't have a loss, I have a gain. "

 of course. My apologies for misreading your question hastily.

You don't have a cost of trade, column (d) because you haven't closed your short position yet,

You don't have a Date Acquired either, because Date Acquired is the date you close your short sale.

 Moreover, you don't have an unrecognized gain column (e), because your positions were all marked to market.

@bradleyt 

[fanfare]

Instructions for Form 6781

"Don’t complete Part III if you don’t
have a recognized loss on any position
(including section 1256 contracts)."

Are you listing any losses in Part II Section A column (h) ?

@bradleyt 

[bradleyt]

When you say I don't have a cost of trade or date acquired, it appears to me you are treating this futures contract trade similar to a stock trade. I can understand this seems to make sense but still it is not clear to me this is the appropriate treatment for futures contracts. Do you have a reference you can point me to verify this treatment of futures contracts?

When you say I don't have an unrecognized gain because my positions were marked to market. Yes it's correct they were marked to market, but I'm not clear how this implies no unrecognized gain. Aren't section 1256 contracts ALL marked to market? In that case, what would be the point of part III at all if people never used it (because everything on the form is marked to market anyway).

I'm not planning on listing anything in part II. But apparently part II isn't for listing all losses anyway, only losses on straddles. It's possible for me to have a loss on other positions (which I have) without having losses on straddles. 

@fanfare

[fanfare]

Assume $1 per point.

The cost to close on Dec 31 would have been 1770.9

The fair market value to give you an unrealized gain (or unrecognized gain) of 128.2  would be 1899.1

which happens to be the proceeds  of your opening trade.

@bradleyt 

[bradleyt]

Earlier you said I don't have an unrecognized gain on this transaction because it's marked to market. Now you say I do? So I'm confused now. I can see a potential case as you suggested previously for marked to market gains not being listed in part III, so thank you for bringing that to my attention. But I guess that would mean I have to list on part III instead unrealized gains on my regular stock portfolio instead and not my open futures positions? So maybe part III isn't just for section 1256 contracts after all? 

@fanfare 

[fanfare]

Part II and Part III are for professionals.

I think the instruction I quoted above is pretty clear.

Further Instructions Form 6781.

"Don’t include in Part II a disposition of
any of the following.
• A position that is part of a hedging
transaction.

• A position that is part of a straddle if all
of the positions of the straddle are
section 1256 contracts."

In other words, for most run-of-the mill active investors who trade futures or options on futures,
this is of no concern.

@bradleyt 

[bradleyt]

I have never seen anywhere that the IRS says these sections are only for professionals. That's great if that's the case then I wouldn't have to worry about part III in particular, but I'd like to verify this. Can you point me to an authoritative source for this claim? How do you know this is true?  

@fanfare 

[fanfare]

"How do you know this is true?  "

This is my inference based on the exact quotes from The Instructions, cited above.

If this is not convincing ,use your own judgement .

Or consult your tax professional specializing in this area.

@bradleyt 

[fanfare]

"Now you say I do"

I figured you'd say that.

I did some arithmetic to propose a way to get the result you wanted.

That doesn't mean I would enter that on my own Form 6781.

@bradleyt 

[GeorgeM777]

You may have already resolved your question; however, if this issue remains unresolved, here is a suggestion.  Because you did not close your short position at the end of 2022, your cost remains unknown.  Thus, for your cost basis, enter the year-end closing price of 1770.9.  Use your opening price of 1899.1 as the fair market value on the last day of the year.  While this approach may seem counter-intuitive, it will produce the correct unrecognized gain in column (e).

In TurboTax you can enter a description such as One Short Russell 2000 Futures or similar description to give adequate notice to any reviewer that your position is a short position, and thus, the opening trade was a sell to open, and at the end of the year, the buy to close had not yet occurred; however, the short position, as you noted in your post, had an unrecognized gain.

In TurboTax, enter your information about this trade as follows:

1. In TurboTax CD/download, select Personal Income, then scroll down to Investment Income and select Contracts and Straddles.  In TurboTax online the process is similar, except you will begin the process by selecting Investments and Savings.
2. You may see a screen requesting information about Elections, skip that page as it does not seem to apply to your tax situation.
3. On the screen, Contracts and Straddles, select Unrecognized gains from positions held on December 31, 2022.
4. On the screen, Part III - Unrecognized Gains, enter your information.  Whatever description you enter in the description field will appear on Form 6781.  

@bradleyt