How Does the “Mark-to-Market” Rule Affect the Taxation of Futures?

The Mark-to-Market (MTM) rule, under US tax law (Section 1256), requires traders to treat certain regulated futures contracts as if they were sold at fair market value on the last day of the tax year, regardless of whether they were actually closed. Gains and losses are typically treated as 60% long-term and 40% short-term capital gains, offering a favorable tax treatment.