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.

See also Capital Gain in the American Legal Encyclopedia and Capital Gain in the World Legal Encyclopedia.