How Is the Tax on a Section 1256 Option Calculated If It Expires Worthless? ⎊ Path

How Is the Tax on a Section 1256 Option Calculated If It Expires Worthless?

If a Section 1256 option expires worthless, the loss recognized is still subject to the 60/40 rule. The premium paid for the option is treated as a loss, and 60% of that loss is long-term capital loss, while 40% is short-term capital loss.

This is one of the advantages of Section 1256, as a loss is treated as 60% long-term even if the option was held for only a short period.

If a Future Settles on December 31st, When Is the Gain or Loss Realized for Tax Purposes?

Does the Net Investment Income Tax (NIIT) Apply to Section 1256 Gains?

How Does the Tax Treatment of Broad-Based Index Options Compare to Single-Stock Options?

Does the Holding Period Matter for Options on Section 1256 Contracts?

How Does the Timing of Settlement for a Crypto Future Impact the Tax Year of the Gain or Loss?

Is There a Minimum Holding Period for a Derivative to Qualify as Long-Term?

Is There a Similar Rule to the Wash Sale for Section 1256 Contracts?

How Does the Wash Sale Rule Differ for Stocks versus Section 1256 Contracts?

Glossar

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 Contract

Definition ⎊ This classification identifies specific exchange-traded futures and certain non-equity options that are subject to special tax accounting rules under the relevant tax code section.