Question

On May 28, 2018, A bought a regulated futures contract for $ 90,000. On December 31, 2018 (the last business day of the tax year), the fair market value of the contract was $112,000. a) What gain or loss, if any, does A recognize on her return? b) Is the gain or loss treated as long term or short term and what type of gain is it?

Answer 1

Gain on future contract = 112000-90000 = 22000

Yes A would recognize the gain of 22000 on his income tax return

Generally gain which arises due to holding period of more than one year are treated as long term gain while in this case neither it is long term or short term gain, Section 1256 of IRS defines gain or loss on future contract as a special 60/40 long-term/short-term "mixed straddle" rule, in which 60% portion of gain would be taxed as long term while 40% as short term gain