Tax Facts

7586 / What are securities futures contracts?

Under 2000 legislation, the definition of “equity option” (see Q 7560) was amended to include securities futures contracts (i.e., single stock futures and narrow-based stock index futures).1 For purposes of the income tax rules, the term “securities futures contract” means a contract of sale for future delivery of a single security or a narrow-based security index.2

A securities futures contract will generally not be treated as a commodity futures contract for purposes of the Internal Revenue Code. (An exception exists for dealer securities futures contracts.)3 Thus, holders of these contracts generally are not subject to the mark-to-market rules of IRC Section 1256 (see Q 7592) and are not eligible for 60 percent long-term capital gain and 40 percent short-term capital gain treatment. Instead, gain or loss on these contracts will be recognized under the general rules relating to the disposition of property.4 For the tax treatment of securities futures contracts generally, and the treatment of such contracts under the rules governing short sales, wash sales, and straddles, see Q 7587.

1.   See the Commodity Futures Modernization Act of 2000 and CRTRA 2000 Section 401, both incorporated by reference in the Consolidated Appropriations Act of 2001.

2.   IRC § 1234B(c); Securities Exchange Act of 1934 § 3(a)(55)(A).

3.   H.R. Conf. Rep. No. 106-1033 (CRTRA 2000). See IRC § 1234B(d).

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