What Is the Mark-to-Market Rule for Section 1256 Contracts?

The mark-to-market rule requires traders to treat all Section 1256 contracts held at the end of the tax year as if they were sold for their fair market value on the last business day of the year. This realized or unrealized gain or loss is then subject to the 60/40 rule.

This rule prevents traders from deferring gains into the next tax year by simply holding the position.