Explain the 60/40 Capital Gains Split in Simple Terms.
The 60/40 capital gains split is a tax rule where 60% of the total net gain or loss from Section 1256 contracts is treated as long-term capital gain or loss. The remaining 40% is treated as short-term capital gain or loss.
This blend is often advantageous for traders because long-term gains are taxed at lower rates than short-term gains, which are taxed at ordinary income rates. This applies regardless of how long the contract was held.
Glossar
Long-Term Capital Gains Tax
Imputation ⎊ Long-term capital gains tax, within cryptocurrency, options, and derivatives, applies to profits realized from assets held for greater than one year, assessed against the holding period basis and adjusted cost.
Capital Gains Split
Taxation ⎊ Capital Gains Split, within cryptocurrency, options, and derivatives, denotes the apportionment of profit or loss realized from an asset sale between different tax jurisdictions or reporting entities.
60/40 Capital Gains Split
Allocation ⎊ ⎊ A 60/40 capital gains split, within cryptocurrency, options, and derivatives, typically denotes a portfolio strategy prioritizing capital appreciation over income generation, reflecting a higher risk tolerance.
60/40 Split
Allocation ⎊ The 60/40 Split dictates that sixty percent of the net gain or loss from a Section 1256 Contract is treated as a long-term capital gain or loss.
Section 1256 Contracts
Taxation ⎊ Section 1256 Contracts, within the context of cryptocurrency derivatives and options, denote financial instruments specifically designated under Section 1256 of the Internal Revenue Code, resulting in a present value treatment of gains and losses as ordinary income or loss rather than capital gains or losses.
Gains
Realization ⎊ Gains, within cryptocurrency, options, and derivatives, represent the quantified difference between the initial outlay and the subsequent value received upon the closure or liquidation of a position; this is fundamentally a measure of profit, net of associated costs, and is critical for performance attribution.