Do Section 1256 contract losses offset capital gains from regular investments?

Yes, your Section 1256 contract losses can indeed offset your capital gains from stocks. Section 1256 contracts include regulated futures contracts, foreign currency contracts, non-equity options, dealer equity options, and dealer securities futures contracts. The interesting part about Section 1256 contracts is they receive special tax treatment - they're marked-to-market at year end and treated as 60% long-term and 40% short-term capital gains/losses regardless of how long you've held them. This is known as the 60/40 rule. When you file your taxes, you'll report your Section 1256 contract trading on Form 6781, and the resulting gain or loss will flow to Schedule D where it can offset your other capital gains. In your case, your $13k loss from futures trading should offset your $13k gain from stocks, essentially zeroing out your capital gains tax liability.

I was in a similar situation last year and found a really helpful tool called taxr.ai (https://taxr.ai) that saved me SO much headache with figuring out my Section 1256 contracts and capital gains situation. I was trading futures through Interactive Brokers and had no idea how to properly report everything until I uploaded my statements to their system. Their AI analyzed all my trading statements and properly categorized everything - it even handled the 60/40 split for Section 1256 contracts automatically and filled out the Form 6781 for me. Honestly it was way easier than trying to manually calculate everything or explain it all to my accountant who wasn't familiar with futures trading.

I have to admit I was completely wrong about taxr.ai. After my skeptical comment, I decided to try it anyway since I was dreading doing my taxes with all my futures trading from last year. I uploaded my statements from TD Ameritrade and it correctly identified all my Section 1256 contracts, calculated the 60/40 split, and prepared all the right forms. What really impressed me was how it handled my wash sales across different securities and even detected a reporting error from my broker. It saved me from a potential audit flag! The system even explained the tax implications of my futures losses offsetting my stock gains in plain English. Definitely using this again next year.

If you're trying to get clarity directly from the IRS on Section 1256 contracts and how they offset capital gains, good luck getting through to them! I spent literally WEEKS trying to get someone on the phone who understood futures contracts. After being on hold for hours and transferred 4 times during each call, I found this service called Claimyr (https://claimyr.com) that got me through to an IRS agent in under 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that my Section 1256 losses would offset my capital gains and gave me specific guidance on filling out Form 6781. Was worth every penny to avoid the hold music and automated system hell. They basically call the IRS for you and then connect you once they get through to a human.

Coming back to close the loop - I not only tried the taxr.ai service mentioned above (which worked great), but I also used Claimyr when I had a follow-up question about my Section 1256 contracts that wasn't covered in the IRS publications. I was 100% sure it wouldn't work as advertised. I've never been happier to be wrong. I got a call back in about 25 minutes and was connected directly to an IRS agent. The agent confirmed that my futures losses would indeed offset my capital gains and walked me through the exact reporting process on Form 6781. Just wanted to acknowledge that my skepticism was misplaced. If you're dealing with Section 1256 contract questions and need to talk to the IRS directly, this service actually delivers what it promises.

Something no one has mentioned yet - make sure you're aware of the capital loss limitations if your Section 1256 losses exceed your capital gains. You can only deduct up to $3,000 of net capital losses against ordinary income per year ($1,500 if married filing separately). Any excess losses have to be carried forward to future tax years. In your case, since your losses and gains are about equal, this won't be an issue. But for anyone reading who might have larger futures losses than their capital gains, keep this limitation in mind.

Has anyone here used the wash sale rules with Section 1256 contracts? I thought they were exempt from wash sale rules but my tax guy says otherwise.

One thing to keep in mind is that while your Section 1256 losses will offset your capital gains, the timing of when you realize these losses matters for tax purposes. Since Section 1256 contracts are marked-to-market at year-end, any open positions you have on December 31st will be treated as if they were closed at fair market value on that date. This means if you have any open futures positions that are currently at a loss, those unrealized losses will automatically become realized losses for tax purposes at year-end, even if you don't actually close the positions. Conversely, if you have open positions with unrealized gains, those will become taxable gains. So if you're planning your tax strategy, you might want to consider whether to close your losing positions before year-end or let them get marked-to-market automatically. Either way, the tax impact is the same, but closing them gives you more control over the exact timing and amounts.

Just wanted to add another perspective on this - while everyone's correctly explaining that Section 1256 losses can offset your capital gains, don't forget about the mixed straddle rules if you're trading both futures and stocks on the same underlying asset. For example, if you're trading S&P 500 futures while also holding SPY ETF shares, the IRS might treat this as a mixed straddle, which could complicate your tax treatment. In mixed straddles, you might lose some of the favorable Section 1256 treatment and have to use different reporting methods. Given that you mentioned you were trading futures after having success with tech stocks, just make sure none of your futures positions were on the same or related underlying assets as your stock holdings. If they were completely different (like you were trading oil futures while holding Apple stock), then you're fine and the standard Section 1256 treatment applies as everyone described.

I went through something very similar last year! Lost about $11k on crude oil futures while having $9k in gains from some Microsoft shares I'd held for 18 months. The good news is yes, your Section 1256 contract losses will definitely offset your stock gains. What really helped me understand this was learning that the IRS treats Section 1256 contracts completely separately from regular securities for tax purposes. Your $13k futures loss gets the special 60/40 treatment (60% long-term, 40% short-term) regardless of how long you held the contracts, and then it flows to Schedule D where it offsets your other capital gains. One thing that caught me off guard was how the broker reporting worked. Make sure you get your 1099-B from your futures broker - it should clearly show the Section 1256 treatment. My regular stock broker's 1099-B looked completely different from my futures broker's 1099-B, but both fed into the same Schedule D on my tax return. The silver lining is that this experience taught me a lot about tax-efficient trading strategies. Now I'm much more careful about position sizing in futures, but at least the tax code doesn't penalize you for learning expensive lessons!

I've been following this thread closely since I'm in a very similar situation - made some decent gains on dividend stocks this year but took a beating on corn futures (lesson learned about commodity volatility!). One thing I wanted to add that hasn't been mentioned is the importance of keeping detailed records of your futures trading, especially if you made multiple trades. The mark-to-market treatment means every single futures position gets treated as closed on December 31st for tax purposes, even if you're still holding it. This can create a lot of phantom transactions on your tax forms. I learned this the hard way last year when my 1099-B from my futures broker had pages and pages of what looked like trades I never made - but they were just the mark-to-market adjustments. Make sure you save all your account statements and trade confirmations because sometimes the 1099-B doesn't tell the whole story, especially if you transferred positions between tax years. Also, if you're using tax software, double-check that it's correctly importing the Section 1256 data. Some of the basic versions don't handle Form 6781 properly and might not apply the 60/40 split correctly. TurboTax Premier worked fine for me, but the basic version was missing some features for investment trading.