Is something missing from my Form 6781? Help with Section 1256 Contracts

Question

I have a 1099-B for Gains and Losses from Section 1256 Contracts. I have losses on line 8, 9, 10, and 11 for 1099-B. Following the prompts at FreeTaxUSA, basically line 11 is entered into Form 6781 Part 1 Line 1, 2, 3, 5 and 7. That would seem fine, except I have values for line 9 and 10 on 1099-B.

For line 9, it says TOTAL UNREALIZED PROFIT OR LOSS ON OPEN CONTRACTS - 12/31/22. (300.00)

For line 10, it says TOTAL UNREALIZED PROFIT OR LOSS ON OPEN CONTRACTS - 12/31/23. (300.00)

I know I didn't hold any contracts over from 2023 to 2024, but it appears I did hold contracts over from 2022 to 2023.

Assuming the info the broker gave here is correct. What do I do with line 9 and 10? I'm not hedging anything. These are not part of straddles. They are not even unrecognized gains from positions held on last day of tax year. (They unrecognized losses.)

How do I figure out fair market value? Or did the broker figure that out for me?

pelomelogram · Answer

https://community.freetaxusa.com/discussion/comment/1914#Comment_1914

1256 contracts are marked to market at the end year. Even if you don't close your position in reality, a transaction to close the position is generated at the broker, and that gain or loss is recorded, not just for informational purposes, on line 10, which is then aggregated on line 11. Ultimately you're right, just use line 11, BUT that's only if line 11 is accurate.

Here is an example of what happen.

I bought a 1256 contract on 12/30/2022 for 500.00. At the end of the year it's worth 400.00. I didn't sell it. For that contract, on my 2022 1099-B, it has Line 8: 0.00, Line 9: 0.00, Line 10: (100.00), Line 11: (100.00). Additionally the 1099-B shows proceeds, 400.00, cost 500.00. Buy date 12/30. Sell date 12/31. Remember I didn't really sell it. The broker wouldn't record it if nothing happened. It's a mark-to-market transaction. I still hold the contract in reality.

On 1/3/2023 I actually sold it, for 700.00. For that contract on my 2023 1099-B, it has Line 8: 200.00, Line 9: (100.00), Line 10: (100.00), Line 11: 200.00. Additionally the 1099-B shows proceeds 700.00, cost 0.00.

So in 2022's return it was recognized as a loss (even though nothing happened). In 2023, the gain is being recognized without acknowledging that loss in 2022. I don't think the IRS would allow free money like that.

I think it should look like this on the 2023 1099-B: Line 8: 200.00, Line 9: (100.00), Line 10: 0.00, Line 11: 300.00.  Line 8 less Line 9 plus Line 10 = Line 11. I'd appreciate clarification on this. So far finding any info on this is like looking for a needle in a haystack.

CoryF · Answer

Thank you for joining our community, Pelomelogram.

The 1099-B is to report realized gains or losses. In this case lines 9 and 10 are just informational as they are reporting Unrealized gains or losses on open contracts. This may be reported for your benefit as the investor, but they don't have any context to reporting required on the Individual tax return. You can ignore these lines and report the necessary realized loss showing on line 11 for your tax return inputs.