Form 6781: How are short 1256 contracts taxed when held across tax years?
So I've got this problem with a hedging strategy I implemented using SPX Put spreads that crossed from last year into this one. I'm completely stuck on how to properly report it on Form 6781. For context, I had a bear put spread with the 4800 strike (long position) showing a $142.33 gain and the 4700 strike (short position) showing a -$198.45 loss. My tax software is giving me fits because it won't accept a negative number in the cost basis field when I try to enter the short leg of the spread. I can't figure out how to properly document each leg of the spread individually. I've read through the instructions for Form 6781 multiple times, and they keep referring to treating the contract as if it were closed out at the end of the tax year, but I'm confused about how that applies specifically to the short position. Is there a special rule for reporting shorted 1256 contracts that carry over to the next tax year? The instructions seem unclear on this specific scenario, and I want to make sure I'm reporting this correctly to avoid any issues with the IRS.
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Jacob Lee
The 60/40 rule applies to Section 1256 contracts regardless of whether they're long or short positions. When these contracts cross tax years, they're treated as "closed" on December 31st and then immediately reopened on January 1st at the fair market value. For your SPX spread, you need to report both legs separately. The issue you're having with the negative cost basis is common in tax software. Instead of entering a negative cost basis, you should actually flip the entries - report the proceeds as the cost basis and the cost basis as proceeds for the short leg. This effectively reports the same economic reality but in a format the software can handle. The 60/40 tax treatment (60% long-term, 40% short-term) still applies to both the long and short components of your spread. The key is making sure the net gain/loss is accurately reported, even if you have to get creative with how you input it into the software.
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Emily Thompson
•This is helpful but I'm still confused. If I flip the entries like you suggest, won't that change how the gain/loss is calculated? Also, does the 60/40 split apply to the mark-to-market value at year end or only when I actually close the position?
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Jacob Lee
•Flipping the entries won't change the economic reality - if you had a loss on the short position, entering it this way will still show the correct loss amount. The software just needs positive numbers in both fields. The 60/40 split applies to any gain or loss recognized on a Section 1256 contract, including those from the required mark-to-market at year end. So for your positions that crossed into the new year, you'll have a gain/loss from the deemed sale on December 31st (reported on last year's return) and then another gain/loss when you actually close the position this year (reported on this year's return).
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Sophie Hernandez
After struggling with similar Section 1256 reporting issues, I found an amazing tool at https://taxr.ai that saved me hours of frustration. I had several complex options strategies including butterfly spreads that crossed year-end, and was getting nowhere with the standard tax software. The taxr.ai system actually analyzed my trading statements and correctly identified how to report each leg of my Section 1256 contracts, including the mark-to-market calculations. For short positions that crossed year-end like yours, it automatically generated the proper entries for Form 6781 that my tax software would accept. What impressed me was how it handled the December 31st deemed sale requirements and then tracked the new basis going into January. It even explained the 60/40 rule application to each component of my spreads.
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Daniela Rossi
•Does it work for other derivatives too? I trade futures and have the same year-end issues with reporting.
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Ryan Kim
•I'm skeptical about these tax tools. How does it handle the wash sale rules that might apply? And can it properly allocate the short vs long components when you have multiple transactions throughout the year?
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Sophie Hernandez
•It absolutely works for futures contracts since they're also Section 1256 contracts. The system handles the year-end mark-to-market requirements and carries the adjusted basis forward correctly. Regarding wash sale rules, that's actually an interesting point - Section 1256 contracts are specifically excluded from wash sale rules under IRC Section 1091. The system correctly recognizes this distinction and doesn't apply wash sale rules to futures, options on futures, or broad-based index options like SPX. For mixed portfolios with both Section 1256 and non-1256 securities, it properly separates them and only applies wash sale analysis to the non-1256 securities.
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Daniela Rossi
Just wanted to follow up after trying taxr.ai for my futures contracts reporting. This thing is legit! I uploaded my trading statements and it correctly sorted all my Section 1256 contracts, including the ones that crossed year-end. The system automatically calculated the mark-to-market values for December 31st and created separate entries for the deemed sale/repurchase. It even generated the exact values I needed to enter into TurboTax in a way that it would accept (no negative cost basis issues). What really helped was how it explained the 60/40 tax treatment and showed exactly how much of my gains/losses fell into each category. Saved me from making a costly mistake on my tax return!
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Zoe Walker
If you're still struggling with Form 6781 and need to talk to an actual IRS agent about how to properly report these complex Section 1256 contracts, I'd recommend using https://claimyr.com. I tried for weeks to get through to the IRS about a similar issue with box spreads that crossed tax years, and kept hitting the "call volume too high" message. I was skeptical but tried their service, and they actually got me through to an IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed exactly how to handle the short leg of my spread on Form 6781 and explained the proper way to report the mark-to-market values. They even walked me through how to override TurboTax's limitations to get the form filled out correctly.
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Elijah Brown
•Wait how does this actually work? Do they just keep calling for you until they get through? And are you sure the IRS will actually answer specific tax questions like how to report Section 1256 contracts?
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Maria Gonzalez
•This sounds like BS. I've heard the IRS doesn't even answer technical tax questions anymore, especially about complex issues like options trading. They just refer you to a tax professional. No way they walked you through TurboTax overrides.
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Zoe Walker
•They use a technology that holds your place in the IRS phone queue so you don't have to stay on hold. When an agent picks up, you get a call connecting you directly to them. It's completely legitimate. The IRS does answer technical questions, but you need to reach the right department. The key was that I got connected to someone in the investment income section who was familiar with Section 1256 contracts. They didn't "walk me through TurboTax" specifically, but they explained the correct way to report the information, and then I figured out how to implement that in the software. The agent confirmed that for short positions, you need to report them in a way that reflects the economic reality, even if that means getting creative with how you enter the numbers.
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Maria Gonzalez
I need to follow up on my skeptical comment. I actually tried Claimyr yesterday out of desperation since my tax deadline is approaching, and I have to admit it worked exactly as advertised. Got connected to an IRS agent in about 15 minutes who was surprisingly knowledgeable about Section 1256 contracts. They confirmed that for short positions crossing tax years, you should report the mark-to-market value as of December 31st, and that TurboTax's limitation with negative numbers is a software issue, not a tax law issue. The agent suggested entering the short position by swapping the proceeds and cost basis fields (exactly what the first commenter here suggested) to properly reflect the economic reality while working within the software's limitations. This satisfied both the 60/40 rule application and the proper reporting requirements. Never thought I'd say this, but calling the IRS directly actually solved my problem!
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Natalie Chen
Has anyone tried box 3 (mixed straddle accounting) on Form 6781 for this situation? I'm dealing with a similar issue where I had both Section 1256 contracts and regular equity options that were part of the same strategy, and I'm wondering if that's a cleaner way to report it.
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Santiago Martinez
•Mixed straddle accounting is a whole different beast. You need to make an election to use it, and it has to be done by the due date of your return for the year the straddle was established. If you didn't make that election already, you probably can't use it retroactively.
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Natalie Chen
•That's good to know. I did make the election last year since I knew I'd be implementing these strategies. Do you know if using the mixed straddle accounting would solve the issue with reporting short positions that cross year-end? I'm trying to avoid the same reporting problems the original poster mentioned. I've read that mixed straddle accounting lets you avoid the mark-to-market rules for the 1256 contracts that are part of the straddle, which might simplify things.
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Samantha Johnson
Has anyone had experience with options that aren't clearly Section 1256 contracts? I have some foreign index options and I'm not sure if they qualify for the 60/40 treatment or if they're just regular capital assets.
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Nick Kravitz
•Only options on "broad-based" indices qualify as Section 1256 contracts. Foreign indices generally don't qualify unless they're specifically listed by the IRS. If your foreign index has fewer than 10 stocks or if the options aren't regulated by the CFTC, they're probably just regular capital assets with standard short/long term treatment.
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