Section 1256 contracts are taxed differently than equity option contracts. Section 1256 contracts have lower 60/40 capital gains tax rates, which means 60% is subject to lower long-term capital gains rates, and 40% is taxed as short-term capital gains using the ordinary rate. Your other short-term losses will be added to the Section 1256 short-term losses and the same would apply for your long-term losses. TurboTax will do the calculations for you.
There is a Section 1256 loss carryback election available. If eligible, rather than use the 1256 loss in the current year, you may deduct 1256 losses on an amended prior-year tax return; however, the carryback loss can only be applied against Section 1256 gains. Thus, if you don't have any 1256 gains from the prior year, then your only option is to include the loss this year and if you have any losses left over, then carry forward the loss to the next tax year.
See this TurboTax tips article for more information, and IRS Form 6781 with instructions for Box D. Net Section 1256 Contracts Loss Election.
See this thread for another discussion of this issue.
If you are carrying over a loss from 2022:
If you transferred last year's TurboTax return over and it included the carryover for this year, you shouldn't have to do a thing—the program may already have entered it for you.
Otherwise, follow these instructions:
- Sign in to your TurboTax account and open your return by selecting Continue or Pick up where you left off in the progress tracker
- In the search bar, search for capital loss carryover, and then select the Jump to link in the search results
- Select Yes on the screen Did you have investment losses you couldn't claim in 2022?*
- Enter the info about your capital loss on the following screens
*In the alternative, you may see a screen "Here's what we have" showing capital loss amounts already entered in the program. Click Edit if the carryover doesn't appear (you see only zeroes). Enter the information about your capital loss for 2022 following the screen prompts.
See this help article for more information.
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