IRS Form 6781 – IRS Forms, Instructions, Pubs 2026 – If you trade futures contracts, options on futures, foreign currency contracts, or use investment strategies involving straddles, the IRS requires special tax reporting. IRS Form 6781 handles gains and losses from Section 1256 contracts and straddles. This form applies unique rules like mark-to-market accounting and the 60/40 capital gains split, which can significantly impact your tax bill.
This comprehensive guide explains what Form 6781 is, who must file it, how to complete it step by step, and key tax implications. Always consult a tax professional or refer to official IRS resources, as tax rules can be complex and individual circumstances vary.
What Is IRS Form 6781?
Form 6781, titled “Gains and Losses From Section 1256 Contracts and Straddles,” reports:
- Gains or losses on Section 1256 contracts under mark-to-market rules.
- Gains and losses from straddle positions under Section 1092 rules.
The form has three main parts:
- Part I: Section 1256 contracts marked to market.
- Part II: Gains and losses from straddles.
- Part III: Unrecognized gains from positions held at year-end (memo entry only).
The net results flow to Schedule D (Form 1040) or Form 8949 for capital gains and losses reporting. Download the latest form here: IRS Form 6781 PDF.
For tax year 2025 (returns filed in 2026), no major recent developments alter the core rules, but always check IRS.gov for updates.
Who Must File Form 6781?
You generally need to file Form 6781 if you:
- Held or disposed of Section 1256 contracts during the year (including those open at year-end, which are marked to market).
- Entered into or closed straddle positions with offsetting risk.
- Received a Form 1099-B reporting Section 1256 transactions (often in Box 11).
Common filers include traders and investors in regulated futures contracts, nonequity options, foreign currency contracts, or dealer equity options. Individuals, partnerships, and S corporations may need to file, but corporations, estates, and trusts have restrictions on certain elections (e.g., loss carryback).
Understanding Section 1256 Contracts
Section 1256 contracts include:
- Regulated futures contracts.
- Foreign currency contracts.
- Nonequity options (e.g., on broad-based stock indexes, commodities, or futures).
- Dealer equity options.
- Dealer securities futures contracts.
Exclusions: Most swaps (interest rate, currency, equity, etc.), interest rate caps/floors, and similar agreements.
Key tax feature: These contracts follow mark-to-market rules. You treat each contract held at year-end as sold at its fair market value (FMV) on the last business day of the tax year. This requires recognizing unrealized gains or losses annually.
60/40 rule: Regardless of actual holding period, net gains or losses are treated as:
- 60% long-term capital gain/loss.
- 40% short-term capital gain/loss.
This often provides favorable tax rates compared to ordinary income. Wash sale rules do not apply to Section 1256 contracts.
Exception for hedges: If you properly identify a contract as a hedge (to manage business risk) by the close of the day you enter it, mark-to-market rules do not apply, and gains/losses are ordinary (subject to other limitations).
What Are Straddles and Their Tax Rules?
A straddle involves offsetting positions in actively traded personal property (e.g., stocks, securities, options, or futures) that substantially reduce risk of loss. Classic examples include buying a call and put option on the same security with similar terms, or holding long and short futures positions.
Tax rules for straddles (Section 1092) primarily defer losses:
- You can deduct a loss on one leg of the straddle only to the extent it exceeds any unrecognized gain on the offsetting position(s).
- Excess losses carry forward to future years.
- Interest and carrying charges on straddles may need capitalization (added to basis) rather than immediate deduction.
Mixed straddles combine Section 1256 contracts with non-Section 1256 positions and have special elections available.
How to Complete IRS Form 6781: Step-by-Step Guide?
Step 1: Identify applicable boxes at the top
Check all that apply:
- A: Mixed straddle election (exempts Section 1256 contracts in a mixed straddle from mark-to-market).
- B: Straddle-by-straddle identification election.
- C: Mixed straddle account election.
- D: Net Section 1256 contracts loss election (for 3-year carryback; individuals only).
Part I: Section 1256 Contracts Marked to Market
- Line 1: List accounts and enter losses (column b) and gains (column c), including mark-to-market values for open contracts and actual gains/losses for closed ones.
- Compute net on lines 2–5 (adjust for Form 1099-B if needed).
- Line 6: Enter carryback amount if electing (positive number).
- Line 7: Final net.
- Lines 8 and 9: Split into 40% short-term (to Schedule D/Form 8949 line 4) and 60% long-term (line 11).
Part II: Gains and Losses From Straddles
- Section A (Losses): List each straddle, compute recognized loss after offsetting unrecognized gains.
- Section B (Gains): Report gains (no deferral).
- Split short-term and long-term portions to Schedule D/Form 8949.
Part III: Unrecognized Gains From Positions Held on Last Day of Tax Year
- Memo entry only: List open positions in straddles and their unrecognized gains (for loss limitation calculations in future years). Do not include in totals.
Attach a separate statement detailing each straddle and its components.
Reporting on Your Tax Return and Special Elections
Net amounts from Form 6781 transfer to Schedule D (or Form 8949 for detailed reporting). These feed into your overall capital gains calculation on Form 1040.
Net Section 1256 loss carryback election (Box D): Individuals (not corporations, estates, or trusts) can carry back a net loss up to 3 years. The loss retains 60/40 character and offsets only Section 1256 gains in carryback years. File amended returns (Form 1040-X) with revised Form 6781.
Mixed straddle elections (detailed in instructions and Pub. 550) allow flexibility in applying mark-to-market or straddle rules. These elections are often irrevocable without IRS consent and may require statements attached to your return.
Common Examples
- Futures trader: You close some contracts during the year and hold others at Dec. 31. Report actual gains/losses plus year-end mark-to-market on Part I. Apply 60/40 split.
- Straddle investor: You close one leg at a $15,000 loss, but the offsetting position has $12,000 unrecognized gain. Deduct only $3,000 loss this year; carry forward the rest.
Tips for Accurate Reporting and Avoiding Mistakes
- Use broker statements and Form 1099-B data carefully—adjustments may be needed on line 4 of Part I.
- Maintain clear records for identifications (hedges, straddles, elections) by the required deadlines.
- Watch for interactions with other rules (e.g., qualified opportunity funds, self-employment tax for dealers, or trader mark-to-market election under Section 475, which uses Form 4797).
- Software like TurboTax or TaxAct often has dedicated sections for Form 6781 entry.
- Review Publication 550 (Investment Income and Expenses) for deeper details on straddles and Section 1256 contracts.
Frequently Asked Questions (FAQs)
- Do I need Form 6781 if I only have stock options?
Generally no—equity options on individual stocks are not Section 1256 contracts unless they are dealer equity options. - How does the 60/40 rule benefit traders?
It converts what would be short-term gains (taxed at ordinary rates) into mostly long-term gains, eligible for lower capital gains rates. - What if I have a net loss on Section 1256 contracts?
You can carry it forward indefinitely as a capital loss (with $3,000 annual limit against ordinary income) or elect 3-year carryback. - Are straddles subject to wash sale rules?
Straddle rules can interact with wash sales, often deferring losses further.
Conclusion
IRS Form 6781 ensures proper reporting of complex derivative and hedging strategies under special tax provisions designed to prevent abuse while providing clear rules for traders. Proper use can optimize your tax position through the 60/40 treatment and loss deferral mechanics.
For the official form and instructions, visit IRS.gov/Form6781. This article is for informational purposes only and is not tax or legal advice. Tax laws change, and your situation may require personalized guidance from a qualified tax advisor or CPA.
Last updated for 2025 tax rules based on current IRS publications and forms.