Bitcoin Futures and Section 1256: The 60/40 Rule and Mark-to-Market

Spot bitcoin and bitcoin futures can track the same price and be taxed under completely different rules. Hold spot bitcoin for six months and your gain is short-term. Hold a qualifying bitcoin futures contract for six days and 60 percent of the gain is treated as long-term.

That is section 1256, a set of rules written long before crypto that applies to certain exchange-traded contracts. Whether a crypto derivative falls inside it depends on what it is and where it trades.

What section 1256 does

Section 1256(a) sets three rules for section 1256 contracts:

• Mark to market. Each contract held at the close of the taxable year is treated as sold for its fair market value on the last business day of the year, and the gain or loss is taken into account that year.
• Later adjustment. When you actually close the contract, gain or loss is adjusted for what was already taken into account.
• 60/40 character. Any gain or loss is treated as 40 percent short-term and 60 percent long-term capital gain or loss, regardless of how long you held the contract.

Section 1256(c) applies the same rules when a contract is terminated or transferred during the year, whether by offset, delivery, exercise, assignment or lapse.

What counts as a section 1256 contract

Section 1256(b)(1) lists regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options and dealer securities futures contracts. For crypto, the important category is the regulated futures contract.

Section 1256(g)(1) defines a regulated futures contract as a contract for which the amount required to be deposited and the amount that may be withdrawn depend on a system of marking to market, and which is traded on or subject to the rules of a qualified board or exchange. Section 1256(g)(7) defines a qualified board or exchange to include a national securities exchange registered with the SEC, a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, or any other market the Treasury determines has adequate rules.

So a bitcoin or ether futures contract listed on a CFTC-designated contract market, with daily mark-to-market margining, fits the definition. A listed option on such a futures contract can be a nonequity option, which is also a section 1256 contract.

What usually does not qualify

• Spot crypto. Owning bitcoin is owning property, not a contract. Ordinary capital gain rules and holding periods apply.
• Perpetual swaps and futures on offshore platforms that are not qualified boards or exchanges. Without that status, the regulated futures contract definition is not met.
• Swaps. Section 1256(b)(2)(B) excludes interest rate, currency, commodity, equity and similar swaps.
• Margin trading of spot crypto on an exchange. That is leveraged ownership of the underlying asset, not a futures contract. See the existing guide on crypto margin trading.

When a product's status is unclear, the answer turns on its legal terms and the venue. Read both before assuming 60/40 treatment.

The 60/40 benefit in numbers

Suppose a trader in the 32 percent ordinary bracket and the 15 percent long-term bracket earns $100,000 of net gain trading regulated bitcoin futures over a few months in 2026.

• Section 1256: $40,000 short-term at 32 percent ($12,800) plus $60,000 long-term at 15 percent ($9,000), a blended $21,800.
• The same $100,000 from short-term spot trading: all short-term, about $32,000 at 32 percent.

The difference is about $10,200 on the same economic result. Actual figures depend on the whole return and on whether the gains cross bracket lines. The 3.8 percent net investment income tax can apply in both cases above its thresholds. See net investment income tax.

Mark-to-market cuts both ways

You cannot defer gain on an open futures position into next year. A contract that is up $30,000 on the last business day of December is treated as sold, and the $30,000 is taxed this year even if you hold the position into January and it falls. The later adjustment then reflects the January loss in the following year.

That makes year-end tax projections for futures traders a matter of open positions as well as closed trades.

No wash sale issue for marked losses

Section 1256(f)(5) says the wash sale rule in section 1091 does not apply to any loss taken into account under the year-end mark-to-market rule. Spot crypto is generally outside section 1091 anyway, because the statute is written for stock or securities.

Reporting

The broker regulations coordinate digital asset reporting with section 1256. Treas. Reg. 1.6045-1(c)(8)(ii) says that for a sale of a digital asset on or after January 1, 2025, that is also a contract covered by section 1256(b), the broker reports it only under the regulated futures contract rules, not as a digital asset sale on Form 1099-DA. So futures activity at a regulated futures broker is reported under the regulated futures contract rules in Treas. Reg. 1.6045-1(c)(5), not on Form 1099-DA.

On your return, section 1256 results are reported separately from your spot crypto transactions on Form 8949. Do not mix the two, and do not apply spot holding periods to futures.

Traders and hedgers

Section 1256(f)(3) says that gain or loss from trading section 1256 contracts is treated as gain or loss from the sale or exchange of a capital asset, so active futures traders generally keep capital treatment and the 60/40 split. Section 1256(e) carves out hedging transactions that are properly identified as such before the close of the day they are entered into; those are not marked to market and do not get 60/40 treatment. Businesses that use futures to hedge crypto inventory or other exposure should look at the hedging rules specifically.

Options on futures

Section 1256(g)(3) defines a nonequity option as a listed option that is not an equity option, and section 1256(g)(5) defines a listed option as one traded on, or subject to the rules of, a qualified board or exchange. A listed option on a regulated bitcoin futures contract can therefore be a section 1256 contract with the same mark-to-market and 60/40 treatment. Options traded on venues that are not qualified boards or exchanges do not fit that definition.

Year-end checklist for futures traders

• List all open regulated futures and listed options positions as of the last business day of the year, with their settlement values.
• Add the year-end mark to closed-trade results to estimate the year's section 1256 gain or loss.
• Apply the 60/40 split to estimate tax, alongside spot crypto results computed under the ordinary holding period rules.
• Check for straddles between spot holdings and futures.
• Keep broker statements showing realized and unrealized amounts for the year.

Mixing spot and futures

Traders who hold spot bitcoin and hedge it with futures can create a straddle. Section 1256(a)(4) and (d) contain special rules for straddles and mixed straddles, including an election for mixed straddles. These rules are technical, and a straddle can defer losses or change character in ways that surprise people. If you run hedged positions, get the straddle analysis done before year end, not after.

Losses on futures

The 60/40 split applies to losses as well as gains. A net section 1256 loss is treated as 60 percent long-term and 40 percent short-term capital loss, and it nets against your other capital results under the usual rules, including the $3,000 annual limit on net capital losses against ordinary income in section 1211(b).

The bottom line

Regulated crypto futures can carry a real tax advantage through the 60/40 rule, at the cost of annual mark-to-market. Offshore perpetuals and spot margin generally do not get that treatment. Know which product you are trading, and keep futures and spot on separate tracks in your records. See crypto capital gains tax rates for the rate tables that the 60/40 split uses.

Frequently asked questions