IRS Form 6781, Gains and Losses From Section 1256 Contracts and Straddles, is where you report futures and nonequity option activity that gets special tax treatment. You enter your net gain or loss from all Section 1256 contracts in Part I, and the form splits that number 60% long-term and 40% short-term for transfer to Schedule D, regardless of how long you actually held each contract. Part II handles straddles, and three boxes at the top of the form cover mixed straddle elections. The mark-to-market and 60/40 rules are mandatory for qualifying contracts; you don’t elect into them.
Which Contracts Belong on Form 6781
Five instruments qualify as Section 1256 contracts: regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts. The last two apply only to registered options dealers and floor brokers. For a retail filer, Form 6781 is almost always about regulated futures and nonequity options, meaning listed options on broad-based indexes like the S&P 500. Options on individual stocks do not qualify.1Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
The contract also has to trade on a qualified board or exchange. That’s the gatekeeper. Cash-settled Bitcoin and Ether futures on CFTC-regulated venues like the CME meet the test; spot crypto, perpetual swaps on offshore platforms, and options on unregulated exchanges do not, and those go on Form 8949 instead.
Start With Your 1099-B
Your broker reports Section 1256 activity in Boxes 8 through 11 of Form 1099-B rather than as a line-by-line trade list.2Internal Revenue Service. Instructions for Form 1099-B (2026) The boxes are:
- Box 8: profit or loss on contracts closed during the year
- Box 9: unrealized profit or loss on contracts open at the end of the prior year
- Box 10: unrealized profit or loss on contracts open at the end of the current year
- Box 11: aggregate profit or loss, combining the other three
Box 11 is the figure you carry to Form 6781. It already reflects the mark-to-market adjustment on positions you still hold at year end, so you don’t need to compute unrealized gains yourself. If you trade through more than one broker, add the Box 11 amounts together.
Completing Part I
Part I reports all Section 1256 contract gains and losses for the year, including the deemed sale of any positions still open on the last business day. That mark-to-market treatment means you recognize the gain or loss on open contracts even though you haven’t closed them; your basis then resets to the marked value, so you aren’t taxed twice when you actually close the position the following year.3Internal Revenue Service. IRS Form 6781 – Gains and Losses From Section 1256 Contracts and Straddles
Line 1 is where you list the gains and losses. With a single broker, this typically matches Box 11 from your 1099-B. Lines 2 and 3 net the figures. Line 4 captures any adjustments to the 1099-B amount. Line 5 combines Lines 3 and 4. Line 6 is the loss carryback election, discussed below; enter zero here if you aren’t electing one. Line 7 is the total net gain or loss.4Internal Revenue Service. Form 6781 – Gains and Losses From Section 1256 Contracts and Straddles
The 60/40 split happens on the next two lines:
- Line 8: 40% of Line 7, treated as short-term capital gain or loss
- Line 9: 60% of Line 7, treated as long-term capital gain or loss
Transfer Line 8 to Schedule D, Line 4, and Line 9 to Schedule D, Line 11. The split runs the same direction whether Line 7 is positive or negative: a $5,000 net loss becomes a $3,000 long-term loss and a $2,000 short-term loss.
Why the 60/40 Result Matters
Holding period doesn’t figure into any of this. A contract you held three days gets the same 60/40 treatment as one you held three years. Because long-term capital gains are taxed at lower rates than ordinary income, that split lowers the blended rate on active futures trading substantially. In 2026 the top ordinary rate is 37% and the top long-term capital gains rate is 20%,5Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates so a top-bracket taxpayer sees a blended rate of about 26.8% on Section 1256 gains rather than 37% on comparable short-term stock trades.
A worked example: $10,000 in net Section 1256 gains splits into $6,000 long-term and $4,000 short-term. For a filer in the 24% ordinary bracket and the 15% long-term bracket, that’s roughly $1,860 in tax instead of the $2,400 that a flat short-term treatment would produce.
Electing to Carry a Net Loss Back Three Years
If Line 7 comes out negative, individuals can elect to carry the net Section 1256 loss back three years and apply it against Section 1256 gains reported in those years. This can produce a refund for a prior year rather than parking the loss on a forward carryover. Corporations, estates, and trusts cannot make the election.4Internal Revenue Service. Form 6781 – Gains and Losses From Section 1256 Contracts and Straddles
To elect, check Box D at the top of Form 6781 and enter the amount you want to carry back on Line 6 as a positive number. Two limits apply: the loss carried to any single year cannot exceed the net Section 1256 gain reported in that year, and the carryback cannot create or increase a net Section 1256 loss in the earlier year.1Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
To claim the refund, file Form 1045, Application for Tentative Refund, and attach a copy of the current-year Form 6781 and Schedule D along with amended versions of Form 6781 and Schedule D for each carryback year. Work through the earliest carryback year first, then forward until the loss is absorbed.6Internal Revenue Service. 2025 Instructions for Form 1045
Part II: Straddles
Part II applies if you held offsetting positions in actively traded personal property, where holding one position substantially reduces your risk of loss on another. A long futures contract paired with a put option on the same underlying is the classic case. Most Section 1256 filers skip Part II entirely.
The rule Part II enforces is loss deferral. If you close the losing leg at a loss while still holding the winning leg with an unrecognized gain, you cannot deduct the loss to the extent of that unrecognized gain. The disallowed portion carries into the next year, where the same test applies again.7Justia. 26 U.S.C. 1092 – Straddles Section A of Part II is for losses from straddle positions, where you report the loss and the unrecognized gain on the offsetting position. Section B is for gains from straddle positions. The form nets these to determine how much loss is deductible now and how much defers.
Mixed Straddle Elections
A mixed straddle is one where at least one leg is a Section 1256 contract and at least one is not, for example an S&P 500 futures contract offset by an S&P 500 ETF position. Because the two legs otherwise follow different timing rules, Form 6781 offers three elections at the top of the form.
Box A opts the Section 1256 contract out of mark-to-market for that straddle, so all positions follow the standard Section 1092 loss deferral rules. Positions must be identified as part of the straddle by the close of the day you acquire the first Section 1256 contract in it. The election is permanent for future tax years unless the IRS consents to revoke it.
Box B is a straddle-by-straddle identification. You identify specific positions as forming a mixed straddle on a trade-by-trade basis, by the close of the day the straddle is established or the day any position is disposed of, whichever comes first. You cannot use it for a straddle already covered by a Box A election or a mixed straddle account.
Box C establishes a mixed straddle account, grouping all positions in a designated class of activity into a single account. Gains and losses within the account are netted daily, and the account is marked to market at the close of each business day. Net gains attributable to Section 1256 contracts keep the 60/40 split; net gains attributable to non-Section 1256 positions are treated as short-term. This election must be made by the due date (without extensions) of the prior year’s return and applies only for the tax year elected.8eCFR. 26 CFR 1.1092(b)-4T – Mixed Straddles
Missing the identification timing can disqualify any of these elections, so if you run hedged strategies that combine futures or index options with stock or ETF positions, the choice among Box A, B, and C is worth making deliberately.
Two Rules That Sit Outside the Form
Hedging transactions do not go on Form 6781. If a Section 1256 contract meets the definition of a hedging transaction under IRC Section 1221(b)(2)(A) and you identify it as a hedge before the close of the day you enter the position, mark-to-market does not apply and the gain or loss is ordinary rather than capital.9Office of the Law Revision Counsel. 26 U.S. Code 1256 – Section 1256 Contracts Marked to Market In practice this covers businesses managing operational risk, such as an airline hedging fuel or a manufacturer hedging commodities. Positions entered into by or for a syndicate don’t qualify, and individual speculators don’t either.
Wash sale rules under IRC Section 1091 do not apply to Section 1256 contracts.3Internal Revenue Service. IRS Form 6781 – Gains and Losses From Section 1256 Contracts and Straddles You can close a losing futures position and reopen an identical one immediately without losing the deduction. The Section 1092 straddle rules can still defer a loss when you hold an offsetting gain position, but that’s a different mechanism and doesn’t turn on repurchase timing.