He Never Sold His Silver Futures. The IRS Pretended He Did and Taxed More of His Social Security.

Section 1256 silver futures are marked to market on December 31, forcing taxable gains even if the investor never closed the position.

Those forced gains enter adjusted gross income and can make up to 85% of Social Security benefits taxable above $34,000 for single filers.

Retirees should review estimated futures gains before December ends and keep enough cash outside the account to cover the tax bill.

The Retiree Who Thought He Was Just Holding

Picture a man in his late sixties who bought silver futures in a taxable brokerage account. He has held the position across multiple tax years, watching gains and losses move through his margin balance without closing the contract or withdrawing the money. In his mind, no sale means no capital gain. Then January arrives with a Form 1099-B showing taxable profit on a position still sitting in the account.

The form is not wrong. Certain futures contracts do not get to wait for the investor to sell. The tax code closes the books for him every year, and the resulting gain can reach all the way to the taxation of his Social Security.

December 31 Becomes a Sale for Tax Purposes

Exchange-traded silver futures generally qualify as regulated futures contracts under Section 1256. Assuming the contract qualifies and is not part of a properly identified hedge or another special arrangement, it is marked to market on the last business day of the year. The IRS treats the open contract as though it were sold at fair market value and immediately repurchased at the same price. The gain or loss through that date enters the current year's return, while the reset value becomes the starting point for the next year.

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He did not press a sell button, but the tax year did. Section 1256 also supplies its own holding-period rule. Whether he owned the contract for three weeks or 11 months, 60% of the gain or loss is generally treated as long-term and 40% as short-term. The result is reported on Form 6781. That blended treatment can be favorable when a contract rises. When it falls, the loss receives the same 60/40 split and may help offset other capital gains, subject to the usual loss rules and any special rules for straddles.