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What are 1256 contracts and straddles?

Section 1256 contracts is a term used by the IRS to classify certain types of investments. Some examples of Section 1256 contracts are regulated futures contracts, foreign currency contracts, or non-equity options.

A futures contract is a contract where you agree to buy or sell a certain amount of a commodity at a fixed price to be delivered and paid for at a future date.

A straddle occurs when you make offsetting positions on personal property that are actively traded.

See IRS Form 6781 for more information that defines types contracts and straddles.

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