What Determines If a Crypto Option Is a Section 1256 Contract?
A crypto option is a Section 1256 contract if it is a "non-equity option" traded on a "qualified board or exchange." This typically means the option must be on a regulated crypto futures contract (e.g. CME Bitcoin options) or a broad-based crypto index.
Options on individual cryptocurrencies traded on unregulated platforms generally do not qualify.
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.
Regulated Crypto Futures
Framework ⎊ Regulated crypto futures represent standardized forward contracts traded on recognized exchange platforms, obligating participants to buy or sell a specified quantity of a cryptocurrency at a predetermined future date and price.