Tax Facts

7606 / How is a mixed straddle taxed if it qualifies and is designated as an “identified tax straddle”?

Assuming the straddle qualifies (see Q 7614), the owner of a mixed straddle who has elected to have the IRC Section 1256 contract positions in the straddle excluded from the mark-to-market tax rules may also elect to have the tax straddle taxed as an “identified straddle.”1 (Note that this election does not create what the regulations refer to as an “IRC Section 1092(b)(2) identified mixed straddle.” These are discussed in Q 7608.)

If this election is made, the straddle will not be subject to the loss deferral and wash sale rules discussed in Q 7599.Instead, any loss with respect to a position in the straddle (including the IRC Section 1256 contract positions) will be treated as sustained no earlier than the day on which all positions making up the straddle are disposed of.2 The tax straddle short sale rules continue to apply. For details, see Q 7599 and Q 7614. The application of the constructive sale rules of IRC Section 1259 to identified straddles is discussed in Q 7614.

An election to remove the IRC Section 1256 contracts from the mark-to-market tax rules is necessary in order for a mixed straddle to be taxed as an identified straddle because without this election the mixed straddle rules discussed in Q 7607 will control.

1.   IRC § 1092(a)(2)(B).

2.   IRC § 1092(a)(2)(A)(ii).

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.