How Is a Physically-Settled Commodity Future Taxed If It Is a Section 1256 Contract?

A physically-settled commodity future that is a Section 1256 contract is still subject to the 60/40 rule and mark-to-market. However, if the contract is held until delivery, special rules apply.

The delivery is not a taxable event, but the basis of the commodity received is adjusted by the mark-to-market gain/loss. The subsequent sale of the commodity is a taxable event.