7609 / How are gains and losses that are part of a mixed straddle for which a straddle-by-straddle identification election has been made treated if all positions are disposed of on the same day?

If all positions of the mixed straddle are disposed of on the same day, gains and losses from the IRC Section 1256 contracts in the straddle are netted. Gains and losses from non-IRC Section 1256 contract positions are also netted. Net gain or loss from the IRC Section 1256 contracts is then offset against the net gain or loss from non-IRC Section 1256 positions. If total net gain or loss from the straddle is attributable to IRC Section 1256 positions, then the capital gain or loss will be treated as 60 percent long-term and 40 percent short-term. If the total net gain or loss from the straddle is attributable to non-IRC Section 1256 positions, then the gain or loss will be short-term capital gain or loss.¹

Example. On March 1, Nathan enters into a non-IRC Section 1256 position and an offsetting IRC Section 1256 contract and makes a valid election to use the straddle-by-straddle identification rules. On March 10, Nathan disposes of the non-IRC Section 1256 position at a $600 loss and the IRC Section 1256 contract at an $800 gain. The total net gain of $200 on the straddle is attributable to the IRC Section 1256 position. Thus, 60 percent of the net gain ($120) will be long-term capital gain and 40 percent ($80) will be short-term capital gain.

---

1. Temp. Treas. Reg. § 1.1092-3T(b)(2).