How Is a Net Loss under the 60/40 Rule Carried Forward?
A net loss from Section 1256 contracts is first carried back three years to offset any Section 1256 gains in those years. Any remaining loss is then carried forward indefinitely.
The loss maintains its 60/40 character when carried back or forward, meaning it can only offset future Section 1256 gains or is subject to the standard capital loss deduction limits.
Glossar
Net Loss
Deficit ⎊ Net Loss, within cryptocurrency, options, and derivatives, represents the unfavorable financial difference between realized revenues and the aggregate cost of associated trading activities, encompassing transaction fees, funding rates, and opportunity costs.
Capital Loss Deduction
Offset ⎊ Capital Loss Deduction, within cryptocurrency, options, and derivatives, represents the portion of realized capital losses exceeding capital gains in a given tax year, applicable against ordinary income, subject to statutory limitations.
Section 1256
Standardization ⎊ This specific tax code provision mandates special treatment for certain regulated futures contracts, which can apply to crypto derivatives traded on designated exchanges under specific conditions.
Section 1256 Contracts
Contract ⎊ Section 1256 contracts, originating within US tax law, represent a hybrid treatment of financial instruments, particularly those with offsetting positions.
Section 1256 Gains
Taxation ⎊ Section 1256 gains, within cryptocurrency, options, and derivatives, represent a specific category of income treated under Internal Revenue Code Section 1256, subject to a 60/40 rule regardless of holding period.