Getting in on single-stock futures? Watch for these potential tax surprises
Single-stock futures are enticing for active retail traders, but they may come with unintended tax consequences.
TL;DR
- Single-stock futures trade nearly 24 hours a day, allowing leveraged long or short positions.
- The tax treatment is not clear, and it is unlikely to be as favorable as Section 1256 contracts.
- Short-term gains on single-stock futures may be taxed at ordinary income rates, unlike the 60/40 split for Section 1256 contracts.
- Hedging with single-stock futures could lead to a 'constructive sale' by the IRS, triggering capital gains taxes.
- It remains unclear if selling stock and buying a single-stock future violates the wash sale rule.