Can the 60/40 Rule Ever Result in a Higher Tax Burden than Standard Long-Term Capital Gains? ▴ Learn

Can the 60/40 Rule Ever Result in a Higher Tax Burden than Standard Long-Term Capital Gains?

Yes, the 60/40 rule can result in a higher tax burden than standard long-term capital gains. If a derivative is held for more than one year, the entire gain would be long-term capital gain (taxed at 0%, 15%, or 20%).

However, if the contract is Section 1256, 40% of that gain is taxed at the higher ordinary income rate, even if held long-term. The 60/40 rule is only an advantage when the gain would otherwise be entirely short-term.

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