Securities regarded as Section 1256 investments include:
- non-equity options
- foreign currency contracts
- regulated futures contracts
- dealer equity options
- dealer securities futures contracts
- Section 1256 contract gains and losses are reported on Form 6781 and carried over to Schedule D.
Losses on Section 1256 contracts are treated as capital losses and subject to the $3000 limitation. However, unlike other capital losses, you can elect to carry back Section 1256 losses up to 3 years! They can be used only against gains on Section 1256 contracts in previous years.
Not sure what a capital gain or capital loss is? Not sure your current income tax bracket? Refer to this post.