How Does a Loss Carryforward Interact with the 60/40 Rule?

A net loss from Section 1256 contracts is also subject to the 60/40 rule, meaning 60% is treated as long-term capital loss and 40% as short-term capital loss. This loss is first used to offset any capital gains.

If a net loss remains, it can be carried back three years to offset only prior Section 1256 gains or carried forward indefinitely as a 60/40 loss. This carryback feature is unique to Section 1256 losses.