Section 1256 Contract
Section 1256 Contract means:
any regulated futures contract, foreign currency contract, nonequity option, or dealer equity option. For tax purposes, Section 1256 contracts are marked to market; this treatment requires that any contracts outstanding on the last day of the tax year be treated as sold for fair market value. Under the mark-to-market system, 60% of the gain (loss) is treated as long-term capital gain (loss), and 40% is treated as short-term capital gain (loss), regardless of the actual character and holding period. Losses from Section 1256 contracts can be carried back to offset prior gains from such contracts.