Final Regulations Address Gain or Loss Recognition for Identified Mixed Straddles

By Vrezhui Albarian Missakian, CPA, MST, Los Angeles

Editor: Mark G. Cook, CPA, MBA

Gains & Losses

The IRS issued final regulations (T.D. 9678) addressing the time for recognizing gain or loss accruing up to the date a taxpayer enters into an identified mixed straddle for such positions identified after Aug. 18, 2014.


For tax purposes, a straddle generally is defined as offsetting positions with respect to personal property. A taxpayer holds offsetting positions with respect to personal property if there is a substantial diminution of the taxpayer's risk of loss from holding any position with respect to personal property by reason of holding one or more other positions with respect to personal property (whether or not of the same kind). For positions held more than one year, the straddle rules limit the taxpayer's recognition of short-term capital losses on a short sale by treating the loss on the closing date of a short sale as a long-term capital loss (Sec. 1233). These short-sale rules can potentially be avoided for positions that are part of "mixed straddles." In a mixed straddle:

  1. All of the positions held are capital assets;
  2. At least one position (but not all) is a Sec. 1256 contract (futures contract);
  3. An election out of mark-to-market treatment has not been made under Sec. 1256(d); and
  4. The straddle is not part of a larger straddle.

The taxpayer can elect to offset gains and losses from positions that are part of a mixed straddle by separately identifying the positions of each mixed straddle for which the offsetting treatment is elected (Sec. 1092(b)(2)). This straddle is known as an "identified mixed straddle" and is one way of avoiding the loss limitation on the short sale.

Regs. Sec. 1.1092(b)-6

Under new Regs. Sec. 1.1092(b)-6, unrealized gain or loss on a position held before the establishment of an identified mixed straddle is taken into account at that time and has the character provided by the Code provisions that would apply if the identified mixed straddle had not been established. Thus, prestraddle gain or loss will be accounted for under other provisions of the Code, while gain or loss incurred while the straddle is in place will be accounted for under Sec. 1092.

For example, if a non-Sec. 1256 capital asset was held for the long term before the identified mixed straddle was established, any unrealized gain or loss on that asset before establishing the identified mixed straddle will be long-term capital gain or loss when the asset is disposed of in a taxable transaction (Regs. Secs. 1.1092(b)-6(a) and -6(d), Example (2)).

Unrealized gain or loss on a Sec. 1256 contract that accrued prior to the day the contract became part of an identified mixed straddle will be recognized on the last business day of the tax year because the contract is treated as sold on the last day of the tax year under Sec. 1256(a) (Regs. Secs. 1.1092(b)-6(a) and -6(d), Example (1)).

The final regulations also provide that the holding period resets to zero on positions in an identified mixed straddle, and a position does not begin to accrue a holding period until it is no longer part of a straddle (Regs. Secs. 1.1092(b)-6(b) and -6(d), Example (3)).

Lastly, Sec. 1092(a) provides that any loss with respect to one or more positions shall be taken into account for any tax year only to the extent that the amount of the loss exceeds the unrecognized gain, if any, with respect to one or more offsetting positions. Under the final regulations, when applying the loss deferral rules of Sec. 1092(a) and Temp. Regs. Sec. 1.1092(b)-3T(b) (other than Temp. Regs. Sec. 1.1092(b)-3T(b)(6)) to any loss that arises while a position is part of an identified mixed straddle, the amount of unrecognized gain includes both unrecognized gains that accrued before the day the identified mixed straddle was established and unrecognized gains that arise on or after the day the identified mixed straddle identification was made for the position (see Regs. Secs. 1.1092(b)-6(c) and -6(d), Example (4)).


Mark Cook is a partner with SingerLewak LLP in Irvine, Calif.

For additional information about these items, contact Mr. Cook at 949-422-7244 or

Unless otherwise noted, contributors are members of or associated with SingerLewak LLP.

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