Wash Sale Rule Exception for Section 1256 Contracts

§ 1256. Section 1256 contracts marked to market(a) General ruleFor purposes of this subtitle—(1) each section 1256 contract held by the taxpayer at the close of the taxable year shall be treated as sold for its fair market value on the last business day of such taxable year (and any gain or loss shall be taken into account for the taxable year), (2) proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account by reason of paragraph (1), (3) any gain or loss with respect to a section 1256 contract shall be treated as—(A) short-term capital gain or loss, to the extent of 40 percent of such gain or loss, and (B) long-term capital gain or loss, to the extent of 60 percent of such gain or loss, and (4) if all the offsetting positions making up any straddle consist of section 1256 contracts to which this section applies (and such straddle is not part of a larger straddle), sections 1092 and 263(g) shall not apply with respect to such straddle. (b) Section 1256 contract defined(1) In generalFor purposes of this section, the term “section 1256 contract” means—(A) any regulated futures contract, (B) any foreign currency contract, (C) any nonequity option, (D) any dealer equity option, and (E) any dealer securities futures contract. (2) ExceptionsThe term “section 1256 contract” shall not include—(A) any securities futures contract or option on such a contract unless such contract or option is a dealer securities futures contract, or (B) any interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement. (c) Terminations, etc.(1) In generalThe rules of paragraphs (1), (2), and (3) of subsection (a) shall also apply to the termination (or transfer) during the taxable year of the taxpayer’s obligation (or rights) with respect to a section 1256 contract by offsetting, by taking or making delivery, by exercise or being exercised, by assignment or being assigned, by lapse, or otherwise. (2) Special rule where taxpayer takes delivery on or exercises part of straddleIf—(A) 2 or more section 1256 contracts are part of a straddle (as defined in section 1092(c)), and (B) the taxpayer takes delivery under or exercises any of such contracts, then, for purposes of this section, each of the other such contracts shall be treated as terminated on the day on which the taxpayer took delivery. (3) Fair market value taken into accountFor purposes of this subsection, fair market value at the time of the termination (or transfer) shall be taken into account. (d) Elections with respect to mixed straddles(1) ElectionThe taxpayer may elect to have this section not to apply to all section 1256 contracts which are part of a mixed straddle.