Form 6781 is where you report gains and losses on section 1256 contracts, such as regulated futures, foreign currency contracts and nonequity options, and gains and losses from straddles. Section 1256 contracts you still hold at year end are treated as sold at fair market value on the last business day of the year, and the net result is split 60% long term and 40% short term, however long you held them.
Everything below comes from the IRS Form 6781 for 2025, whose instructions are printed on the form itself, as of October 2026.
Which contracts are section 1256 contracts
The instructions list five types. A section 1256 contract is any:
- regulated futures contract
- foreign currency contract
- nonequity option
- dealer equity option
- dealer securities futures contract
Just as important is what's left out. A securities future contract, an option on a securities future contract and swaps (interest rate, currency, basis, commodity, equity, equity index and credit default swaps), along with interest rate caps and floors, aren't section 1256 contracts. If a broker statement mixes these in, they don't belong in Part I.
Mark-to-market and the 60/40 split
Under the mark-to-market rules, each section 1256 contract you hold at the end of the year is treated as if you sold it at fair market value on the last business day of your tax year. Gains or losses on contracts open at year end, or closed during the year, are treated as 60% long term and 40% short term, regardless of how long you held them. The wash sale rules don't apply.
Here's the insight most traders miss: the split ignores holding period entirely. A futures position held for an afternoon still gets 60% long-term treatment, which is the opposite of how a stock held for the same afternoon is taxed. The one way out of mark-to-market is a contract you identified as a hedge on time; a hedging transaction is ordinary income or loss instead.
Part I line by line
| Line | What goes there |
|---|---|
| 1 | Each gain or loss from section 1256 contracts open at year end or closed in the year. From a Form 1099-B, use box 11 and write 'Form 1099-B' and the broker's name. |
| 4 | Form 1099-B adjustments, such as the section 1256 part of a mixed straddle or a hedging transaction, with a statement attached |
| 5 | Lines 3 and 4 combined. Partnerships and S corporations stop here and carry it to Schedule K. |
| 6 | Only if you checked box D: the net section 1256 contracts loss you're carrying back |
| 8 | Line 7 times 40%: short-term gain or loss, to Schedule D line 4 or Form 8949 |
| 9 | Line 7 times 60%: long-term gain or loss, to Schedule D line 11 or Form 8949 |
Lines 8 and 9 feed straight into Schedule D. If you file with Form 8949 instead, the instructions tell you to write 'Form 6781, Part I' in column (a) and leave every column except the gain or loss blank.
Carrying a section 1256 loss back 3 years
If you have a net section 1256 contracts loss for 2025, box D lets you elect to carry it back 3 years. Corporations, estates and trusts can't make this election. The loss you can carry back is the smaller of these two:
- your section 1256 losses minus your section 1256 gains plus $3,000 ($1,500 if married filing separately)
- the total you'd figure as your short-term and long-term capital loss carryovers to 2026 if line 6 were zero
The carryback only offsets section 1256 gains in the earlier year, goes to the earliest year first, and can't create or increase a net operating loss there. You claim it with Form 1045 or an amended return, attaching amended Forms 6781 and Schedule D for each year.
Straddles belong in Part II
A straddle means offsetting positions in personal property of a type that's actively traded. In Section A, a loss on a straddle position is generally allowed only to the extent it's more than the unrecognized gain on the offsetting positions. The part that's not allowed is treated as incurred in the next year. A loss on a position in an identified straddle established after October 21, 2004, isn't allowed at all; instead, the basis of the offsetting positions with unrecognized gain goes up.
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Part III is a year-end list: if you have a recognized loss on any position, list each position you held at the end of the year whose fair market value was above its basis.
The mixed straddle elections, boxes A to C
| Box | Election | What to know |
|---|---|---|
| A | Mixed straddle election | Turns off mark-to-market for the section 1256 part of an identified mixed straddle. It applies to later years too and can't be revoked without IRS consent. |
| B | Straddle-by-straddle identification | Each position must be identified by the end of the day the straddle is set up, or when a position is disposed of, if earlier |
| C | Mixed straddle account | Set up the accounts for 2026 by the due date, without extensions, of your 2025 return, and attach the required statement |
| D | Net section 1256 contracts loss | The 3-year carryback above |
Filling it in
- Gather every Form 1099-B and read box 11 for each section 1256 account.
- Check boxes A to D only for elections you're making or already made.
- Complete Part I and split line 7 into 40% short term and 60% long term.
- Move any straddle positions to Part II, with a separate statement listing each straddle and its parts.
- Carry lines 8 and 9 (and any Part II results) to Schedule D or Form 8949, and attach Form 6781 to your return.
The verdict
If you trade futures, currency contracts or nonequity options, Form 6781 is usually good news: the 60/40 split lowers the rate on short holds and the wash sale rules stay out of the way. The traps are the contracts that look similar but aren't section 1256, and the straddle rules if you hold offsetting positions. Match every number to Form 1099-B box 11 before you file.
Frequently asked questions
What is Form 6781 used for?
It reports gains and losses on section 1256 contracts under the mark-to-market rules and gains and losses from straddle positions.
What is the 60/40 rule on Form 6781?
Gains or losses on section 1256 contracts are treated as 60% long term and 40% short term, regardless of how long the contracts were held.
Do wash sale rules apply to section 1256 contracts?
No. The instructions say the wash sale rules don't apply under the mark-to-market rules.
Can I carry back a section 1256 loss?
Yes, if you're not a corporation, estate or trust. Check box D to carry a net section 1256 contracts loss back 3 years against section 1256 gains.
Where does Form 6781 go on Schedule D?
The short-term amount on line 8 goes to Schedule D line 4 and the long-term amount on line 9 goes to Schedule D line 11, or to Form 8949.
