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| Do you trade Forex? | Here are some important definitions: | |
| Not sure how it fits on your tax return? Currency futures are another form of futures trading - see our Futures trader page for some definitions. As such, they fall under the category of "Section 1256 contracts", with some special rules. By default, foreign currency transactions are taxed as ordinary income, because they fall under IRC 988. A trader needs to specifically elect out of the IRC 988 treatment, to gain the preferential tax treatment of the default Section 1256 contracts.
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Foreign Currency Contract: This is a
contract that: 2. Is traded in the interbank market, and 3. Is entered into at arm's length at a price determined by reference
to the price in the interbank market. |
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| Special rules apply to certain foreign currency transactions. These transactions may result in ordinary gain or loss treatment. For details, see Internal Revenue Code section 988 and Regulations sections 1.988-1(a)(7) and 1.988-3 | ||
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