Folks:

Client (an investor) purchased a vacation home.  He made some futures investments as a hedge on the interest rate fluctuation.  His 1099-B (Section 1256 Transactions) reports $100,000 in profits realized on closed contracts.  The gain/loss worksheet details that $100,000 as the total of the mark-to-market for all the transactions.

I have a few questions:

(1) Can you hedge on a vacation home?  Are there circumstances in which a vacation home can be a trade or business activity?  Does it require renting out the vacation home?

(2) 1256(e) says that mark-to-market does not apply to hedging transactions.  What exactly does that mean?  Does it mean that we do not need to recognize that $100,000 gain?  If so, how do we report that in Lacerte?

Thanks!

Micah