Question about K-1 reporting of Section 1256 Contracts & Straddles on Form 6781

The confusion is understandable! What you're dealing with is how section 1256 contracts are reported for tax purposes versus your actual economic loss. The $245 loss shown on your K-1 under section 1256 Contracts & Straddles represents your portion of the partnership's trading activity in those specific types of contracts. This is separate from your personal trading loss of $600 shown on your 1099-B. These are two separate transactions from a tax perspective, even though they might feel connected to you. Form 6781 is specifically for reporting section 1256 contracts, which receive special tax treatment (60% long-term capital gain/loss and 40% short-term). The K-1 is showing your allocated share of the partnership's trading in these instruments. Your tax preparer is correct - you should report both losses separately: the $600 from your personal trading (1099-B) and the $245 from your K-1 (on Form 6781). The total $845 loss is your legitimate tax loss for the year.

Let me share something that might help. I was in a similar situation last year with some trading losses and K-1 reporting. I found this amazing service called taxr.ai (https://taxr.ai) that helped me make sense of all my investment documents. I uploaded my 1099s and K-1s to taxr.ai and it analyzed everything, explained the different loss categories, and showed me exactly how to handle section 1256 contracts on Form 6781. It pointed out that partnership K-1 losses can indeed be separate from your direct trading losses, just like you're experiencing. The system even flagged that my tax preparer had misclassified some of my section 1256 contract profits as regular capital gains, which would have cost me money! Definitely worth checking out if you're dealing with complex investment tax situations.

Just wanted to update everyone. I took the advice and checked out taxr.ai to help with my complex K-1 and section 1256 contract situation. It was honestly exactly what I needed! When I uploaded my documents, it immediately highlighted how my K-1 was reporting partnership trading losses separately from my personal trading activity. The analysis explained that the $245 on my K-1 was indeed my share of the partnership's section 1256 contract trading, completely separate from my personal $600 loss. The system showed exactly how to report both on different forms and even explained why they're treated differently for tax purposes. My situation was almost identical to the original poster's and now I understand why both losses are legitimate for tax reporting. Definitely cleared up my confusion about why the numbers didn't match my actual account balance.

If you're still confused about this K-1 situation and need to talk to someone at the IRS for clarification, I'd recommend trying Claimyr (https://claimyr.com). I was in a similar situation with section 1256 contracts last year and had questions the IRS needed to answer. I kept calling the IRS directly and couldn't get through - either endless holds or disconnects. Then I found Claimyr and watched their demo video (https://youtu.be/_kiP6q8DX5c) explaining how they hold your place in the IRS phone queue. Within 2 hours I was actually talking to an IRS agent who confirmed exactly how to handle the separate reporting of K-1 section 1256 contracts versus direct trading losses. Getting that official confirmation gave me peace of mind with my filing.

I feel compelled to correct my earlier skepticism about Claimyr. After my frustrated comment, I decided to try it anyway since I was desperate to resolve my K-1 section 1256 contract questions. To my complete surprise, it actually worked. After weeks of failed attempts calling the IRS myself, Claimyr got me connected to an IRS agent within about 3 hours. The agent confirmed exactly how to handle the separation between my direct trading losses and the partnership K-1 section 1256 contract amounts. The IRS agent explained that the K-1 amount represents my share of the partnership's section 1256 trading activity, which is properly reported on Form 6781, while my personal trading losses go on Schedule D. This confirmed exactly what others in this thread were saying. I've now filed my taxes correctly thanks to finally getting through to someone who could officially verify the proper treatment.

Another thing to consider about section 1256 contracts - they get that special 60/40 tax treatment (60% long-term, 40% short-term capital gains treatment) regardless of how long you actually held them. That's why they're reported separately on Form 6781. So while your actual cash loss might be $600, the tax reporting can look different because of how these instruments are treated under tax law. This is actually a benefit in many cases, though in a loss situation it might not seem like it.

Has anyone here actually filed Form 6781 in TurboTax? I'm having a hard time figuring out where to enter my section 1256 contracts from my K-1. The software seems confused by it.

I went through something very similar last year with my K-1 and section 1256 contracts. The key thing to understand is that these are two completely separate tax reporting requirements, even though they might feel connected to your overall trading activity. Your personal $600 loss from SVIX trading gets reported on Schedule D as a regular capital loss. The $245 section 1256 contracts loss from your K-1 gets reported on Form 6781 and receives that special 60/40 treatment (60% long-term, 40% short-term) regardless of holding period. The reason your bank account only shows $600 down is because the K-1 loss represents your allocated share of the partnership's trading activity in these specialized contracts. You didn't directly lose that $245 from your account - it's a pass-through loss from the partnership that you're entitled to claim on your taxes. Your tax preparer is absolutely correct. Both losses are legitimate and should be reported separately. The total $845 loss is your proper tax loss for the year, even though your personal account impact was only $600.

I had a very similar experience with section 1256 contracts from a K-1 last year and it completely confused me at first. The key insight that helped me was understanding that when you invest in a partnership or fund that trades these specialized instruments, you become entitled to your proportional share of their gains and losses for tax purposes, even if you never see the money move in and out of your personal account. Think of it like this: the partnership you invested in conducted separate trading activity in section 1256 contracts (like futures or certain options) that resulted in losses. Your $245 share of those losses flows through to your personal tax return via the K-1, completely independent of your direct trading activity that generated the $600 loss. The IRS treats these as two distinct sources of capital losses: your personal trading (Schedule D) and your share of partnership section 1256 contract activity (Form 6781). Your tax preparer is correct - you can legitimately claim both losses because they represent different economic activities, even though only one directly impacted your bank account. The section 1256 contracts also get special tax treatment with the 60/40 split, which is why they must be reported separately on Form 6781 rather than being combined with your regular capital gains and losses.

I want to add another perspective that might help clarify this situation. As someone who works in tax preparation and sees these scenarios regularly, the confusion between economic loss and tax loss is extremely common with partnership investments. When you invest in a partnership or fund, you're essentially becoming a fractional owner of that entity's business activities. If that partnership trades section 1256 contracts (like certain index futures, forex contracts, or broad-based index options), any gains or losses from those trades get allocated to partners based on their ownership percentage. The $245 loss on your K-1 isn't "phantom" or artificial - it represents real trading losses that occurred within the partnership. You didn't see this money leave your personal account because the partnership conducted this trading with its own capital, but as a partner, you're entitled to your share of both the profits and losses for tax purposes. This is actually beneficial tax policy because it prevents double taxation and ensures that investment losses flow through to the actual economic owners. Your total tax loss of $845 accurately reflects your combined personal trading activity ($600) plus your proportional share of the partnership's section 1256 contract losses ($245). The key takeaway is that partnership taxation looks at economic substance rather than just cash flow in your personal account. Both losses are legitimate and should be reported as your tax preparer indicated.