1256 contracts losses carry back

[graci]

What is the name of your state? MD


Here is my situation -

I made significant losses on 1256 contracts this year and here is my sampscenario.

2022 year
- Long term capital gains - 24,000
- 1256 contracts losses - 140,000

2021 year


- long term gain - 110,000
-- 1256 contract losses - 28000

I had paid taxes on the long term gain last year and wanted to see if you could possibly help me understand this carry back rule and if in any way I would be eligible for the carry back.

Here it what it says on the IRS site -

The amount you can carry back to any prior year is limited to the smaller of:
• The gain, if any, that you would report on line 16 of Schedule D (Form 1040) for that carryback year if only gains and losses from section 1256 contracts were taken into account; or
• The gain, if any, reported on line 16 of Schedule D (Form 1040) for that carryback year.

I didn't have gain on 1256 contracts but did have overall gain on schedule D. Will I be able to carry back the losses even though I didn't have 1256 contracts gains?

Thanks for your help!!

 

[davew9128]

What was unclear about the IRS instructions?

 

[adjusterjack]

@Taxing Matters may be here shortly and answer your question.

 

[davew9128]

@Taxing Matters may be here shortly and answer your question.

I already did.

 

[graci]

What was unclear about the IRS instructions?

M

i am sorry I was not clear.
Here it says -

The amount you can carry back to any prior year is limited to the smaller of:
• The gain, if any, that you would report on line 16 of Schedule D (Form 1040) for that carryback year if only gains and losses from section 1256 contracts were taken into account; or
• The gain, if any, reported on line 16 of Schedule D (Form 1040) for that carryback year.

The fist bullet says if only 1256 contracts were taken into account. This does not apply to me since I had both long term gains and 1256 contracts listed on schedule D.
So I read it both ways. Since the first bullet is not applicable to me I could read it as 0 or that since it is not applicable to me I fall in the bullet 2 category and amend last year return.
I would so much appreciate if you could please help.
Thanks so much!!

 

[LdiJ]

M

i am sorry I was not clear.
Here it says -

The amount you can carry back to any prior year is limited to the smaller of:
• The gain, if any, that you would report on line 16 of Schedule D (Form 1040) for that carryback year if only gains and losses from section 1256 contracts were taken into account; or
• The gain, if any, reported on line 16 of Schedule D (Form 1040) for that carryback year.

The fist bullet says if only 1256 contracts were taken into account. This does not apply to me since I had both long term gains and 1256 contracts listed on schedule D.
So I read it both ways. Since the first bullet is not applicable to me I could read it as 0 or that since it is not applicable to me I fall in the bullet 2 category and amend last year return.
I would so much appreciate if you could please help.
Thanks so much!!

You are misunderstanding the first part. For the first part you are supposed to recalculate the gain based on just the Section 1256 contracts. So, you have a two pronged approach. You first calculate your 1256 gain. If that is zero you stop. If that is not zero then you compare it to the total gain, and you take the smaller of the 1256 gain and the total gain.

IRS instructions are often difficult to interpret.

 

[graci]

You are misunderstanding the first part. For the first part you are supposed to recalculate the gain based on just the Section 1256 contracts. So, you have a two pronged approach. You first calculate your 1256 gain. If that is zero you stop. If that is not zero then you compare it to the total gain, and you take the smaller of the 1256 gain and the total gain.

IRS instructions are often difficult to interpret.

I was hoping that’s not true but it is what it is. Thanks so much for clarifying!!