{"id":175801,"date":"2020-09-09T18:47:00","date_gmt":"2020-09-09T22:47:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/capital-gains-special-considerations-and-products\/"},"modified":"2026-06-26T14:52:21","modified_gmt":"2026-06-26T18:52:21","slug":"capital-gains-special-considerations-and-products","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/capital-gains-special-considerations-and-products\/","title":{"rendered":"Capital Gains – Special Considerations and Products"},"content":{"rendered":"\n

New to Interactive Brokers?<\/strong><\/p>\n\n\n\n

\n
Open Account<\/a><\/div>\n<\/div>\n\n\n

<\/p>\n\n\n

Wash sales<\/h3>\n

What is a wash sale?<\/h4>\nA wash sale occurs when you sell a security (stock, bond, option), and, within 30 days before OR after\nthe sale, you buy a substantially identical security, including a contract or option to buy a substantially\nidentical security. The wash sale prohibits the loss from being claimed as a tax and results in the\ndisallowed loss being added to the basis of the newly acquired holding.\n\nThe word substantially is repeated because the rule was initially aimed at stopping both trading for\nlosses and swinging from one security to another in the same industry in order to “harvest” losses to\nlower or eliminate taxes. The IRS (and the courts) has interpreted “substantially identical” to be a\nholding in the same company. However, it can be a different type of holding (option vs. shares,\npreferred stock vs. common stock). Keep in mind that when a wash sale occurs the loss is just\npostponed; it is not lost for tax purposes. The loss adds to the basis of the security purchased and any\ngain is subsequently reduced by the loss or an additional loss is increased.\n

Section 1256<\/h4>\nSection 1256 allows for special capital gain treatment for the trading of index options. Section 1256\ndoes not apply to single stock options. Section 1256 treats any gains or losses on an index option as\n40% short-term gain\/loss and 60% long-term gain\/loss no matter what the holding period is. This is\nadvantageous if there are gains because a greater percentage of the gain is taxed at a lower rate. There\nis one catch. All Section 1256 contracts are “closed” at the end of a year and all gains and losses are\nrecognized for tax even though they may not have been realized. Each contract is, for tax purposes,\nmarked to market at year end and treated as if it was sold and repurchased at the same price.\n

Commodities<\/h4>\nCommodities are traded as contracts for future delivery of an item. If the purchase occurs within the\nordinary course of business \u2013 meaning it is purchased for use – any gains\/losses are treated as ordinary\nincome. If they are purchased as an investment, the typical gain\/ loss rules apply.\n

Foreign Currency Transactions<\/h4>\nInvestors encounter foreign currency transactions in two different ways. First, a transaction in a\nsecurity where payment and sale is made in a foreign currency. In that case, any gain or loss in the\nchange in value of the currency is included with the gain or loss of the security and treated as a\ngain\/loss subject to the holding period rules, just as if the transaction had occurred in the base\ncurrency (your normal currency).\n\nSecond, investors may invest in the currency itself and hold the currency in an account. No\nincome (other than interest if the account is interest bearing) is recognized on currency held for\ninvestment.\n\nOnce the currency is converted back to the base currency then any resulting gain\/loss is treated as\nordinary income. Remember that the currency must go back to the base currency for income\/loss\nrecognition. For example: if you have a base currency of USD and buy GBP and then trade GBP to\nEuro no gain or loss would be recognized. Once the Euros were converted back to USD any gain or\nloss would be recognized. No holding period rules apply as currency gains\/loss are always treated as\nordinary income.","protected":false},"excerpt":{"rendered":"

The main topics of this lesson are: Wash Sales; Section 1256; Commodities; and Foreign Currency Transactions. For this lesson refer to the Study Notes and watch the video for a synopsis.<\/p>\n","protected":false},"author":929,"featured_media":221449,"parent":0,"comment_status":"open","ping_status":"open","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13576],"traders-academy":[13125,13128,13132],"class_list":["post-175801","trading-lessons","type-trading-lessons","status-publish","has-post-thumbnail","contributors-categories-interactive-brokers","traders-academy-beginner-trading","traders-academy-level","traders-academy-trading-lesson"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\nArchives | Traders' Academy | IBKR Campus<\/title>\n<meta name=\"description\" content=\"The main topics of this lesson are: Wash Sales; Section 1256; Commodities; and Foreign Currency Transaction.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/trading-lessons\/175801\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Capital Gains - Special Considerations and Products\" \/>\n<meta property=\"og:description\" content=\"The main topics of this lesson are: Wash Sales; 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