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1099-B Regulated Futures contract, boxes 9 & 11 in 18 Lacerte

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Level 1

Here's what I did, somebody please talk me out of it...

Client received a 1099B for a regulated futures contract with only box 9 and box 11 completed (other than box 1a "description"). Box 9 is positive and box 11 is the same number only negative. For example Box 9 is $1,234 and box 11 is ($1,234). 

In the Contracts & Straddles (6781) section, I put box 11 in "section 1256 contracts gain (loss)" and box 9 in "Unrecognized gain on offsetting positions (straddles)". I then selected "2=straddles". 

As I understand it, this 1099-B is reporting the loss (box 11) from the closed contracts for the year that correspond to the unrealized profit from the previous year. My client's 2017 1099-B shows the same $1,234 in box 10 (unrealized profit).

At first glance, this appears to be a wash, but I know this isn't the case. Any profit or loss realized is reported in the tax year, then it's offsetting leg to the straddle is reported when it is realized, thus causing the odd looking 1099-B. 

If I've gotten this wrong, then I would appreciate some feedback. Feel free to troll me if you wish 😉 Seriously, I welcome any and all criticism.

Thanks!

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Level 15

Unless your client's trading include straddles and hedging transactions (for which the brokerage should provide a detailed report), you should choose 1 for 1256 contracts.  Your entries will then flow to Part I of F.6781 for the 60/40 treatment.

Box 8 is what your client realized for transactions that were closed during 2018.  Since 1256 contracts are marked-to-market, part of that gain realized had already been recognized in 2017; Box 9 is to adjust for that gain/loss recognized the previous year, so that there wouldn't be any double taxation.  Box 10 is for contracts that are still open as of Dec 31, 2018 and subject to mark-to-market based on the 60/40 rule.

Based on what was reported on your client's 1099-B, it seems like your client was not a heavy trader, he/she probably had only what was left from 2017, and just let that remaining contract(s) (maybe an index option) expire sometime during 2018.  As a result, there is a loss of $1,234 (yes, I remember it's a fictitious number), which would be split 60% for LTCL and 40% for STCL.

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Still an AllStar

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Highlighted
Level 15

Unless your client's trading include straddles and hedging transactions (for which the brokerage should provide a detailed report), you should choose 1 for 1256 contracts.  Your entries will then flow to Part I of F.6781 for the 60/40 treatment.

Box 8 is what your client realized for transactions that were closed during 2018.  Since 1256 contracts are marked-to-market, part of that gain realized had already been recognized in 2017; Box 9 is to adjust for that gain/loss recognized the previous year, so that there wouldn't be any double taxation.  Box 10 is for contracts that are still open as of Dec 31, 2018 and subject to mark-to-market based on the 60/40 rule.

Based on what was reported on your client's 1099-B, it seems like your client was not a heavy trader, he/she probably had only what was left from 2017, and just let that remaining contract(s) (maybe an index option) expire sometime during 2018.  As a result, there is a loss of $1,234 (yes, I remember it's a fictitious number), which would be split 60% for LTCL and 40% for STCL.

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Still an AllStar

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Level 1
Thanks for the quick reply. If I understand you correctly, then this means I entered my client's 1099B incorrectly. (The numbers are actually higher, but I kept the relative math the same on my fictitious numbers.)
Continuing with my fictitious numbers, here's what 2017 looked like:
Box 8 = ($1,200)
Box 9 = $0
Box 10 = $1,234
Box 11 = $34
And to recap, here is 2018:
Box 8 = $0
Box 9 = $1,234
Box 10 = $0
Box 11 = ($1,234)

In my original post, I stated that I selected "2=straddles". This was a mistake. It was late, and I intended to review it this morning.

So, what to do with box 11? It seems as though you're saying that boxes 8, 9, & 10 are all summarized into box 11, which is the only thing I need to enter into "section 1256 contracts gain (loss)", and leave all other cells in Lacerte blank (except for choosing 1=1256 contracts).

Am I now reading this 1099B correctly?

We don't see a lot of clients with futures & options trading, but we are starting to see more of them, so I need to get a handle on this.

Thanks for your help!
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Level 15
Glad to be of help.  So long as your client didn't have straddles or hedging transactions, Box 11 is the only number you'd enter for F.6781 and the 60/40 split will flow through to Sch D.
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Still an AllStar
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