Favorable Tax Treatment

Favorable Tax Treatment for "Regulated Futures Contracts" (RFC)

"Regulated futures contracts" (RFC) are traded on commodities exchanges and are regulated by the exchange and the CFTC.

• Exchange traded commodities, including "currency RFCs" are covered under IRC section 1256 contracts. Investors report RFC section 1256 contracts as capital gains and losses on Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles)
• Investors are allowed to split the gains and losses 60/40 on Schedule D: 60% long-term, 40% short-term. Unlike traditional securities, there are no "holding periods" for futures contracts. Open trade profits or losses are treated as realized capital gains or losses as of the last day of the year and the 60/40 rule is applied to the gross profit or loss achieved during the year.
• With the maximum tax bracket of 35% on short-term capital gains and 15% on long-term capital gains, the current maximum blended rate of 60/40 tax treatment is 23%.
• The wash sale rules that generally apply to losses from the sale of stock, or securities do not apply to any loss arising from a section 1256 contract (which is marked to market at the end of the tax year).

This information is for educational purposes only and should not be construed as tax or investment advice of any kind. Please consult with your tax professional for further clarification.

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