July 2, 2012
By Lou Stanasolovich, CFP®, CCO, CEO, Founder and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc.
Whether investing in Managed Futures Limited Partnerships or in Individual Futures Contracts themselves, they are taxed for income tax purposes under the "Mark-to-Market" system of taxing futures and options on futures contracts traded on U.S. Exchanges, or certain foreign exchanges and certain foreign currency forward contracts (Also known as "Section 1256 Contracts"). As a result, any unrealized profit or loss on positions in such Section 1256 Contracts which are open as of the end of a taxpayer's fiscal year is treated as if such profit or loss had been realized for tax purposes at that time. In general, 60.0% of the net gain or loss which is generated by transactions in Section 1256 Contracts is treated as long-term capital gain or loss, and the remaining 40.0% of such net gain or loss is treated as short-term capital gain or loss. Realized gains are taxed in the same manner.
Source: This article was originally printed as "Futures Contracts – Gain and Loss On Section 1256 Contracts", by Lou Stanasolovich, CFP®, Legend Financial Advisors, Inc.® (Risk-Controlled Investing, May, 2011).
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REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®