How are your capital gains taxed as a Limited Partner with SGLP?
Provided on this page are quotes from tax professionals at SGLP's hired tax firm, Armanino LLP. However, we encourage you to review your taxes with your own tax professional and ask you do not accept information on this page, in its entirety, as professional tax advice.
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We recommend you invest with SGLP through a Self Directed IRA to defer taxes until retirement. Learn more about how you can invest in SGLP by rolling over an IRA or 401(k) here.
If you choose to open an account as an individual or taxable entity, the following may apply.
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We trade Foreign Exchange (Forex) currency pairs which is the exchange rate between two currencies.
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Under the Internal Revenue Code there are two separate tax Sections where a Limited Partner of SGLP may elect to file taxes under one or the other. Each section classifies the gains (losses) separately:
Section 988 - treats capital gains as ordinary income
Section 1256 - treats capital gains as 60% long term and 40% short term​
Here are the links to the tax code for each section; hosted on https://uscode.house.gov/:
Quoted from our CPA at Armanino LLP:
'Trading foreign currencies falls into Internal Revenue Code Section 988 by default which generates ordinary income (not preferential lower capital gain rates). The partners will be allocated Section 988 income on their K-1s and can elect under Regulation 1.988-3(b) to have 60% of the gain treated as long term and 40% treated as short term under the capital gain rules which would be nice for them."
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"There is some uncertainty whether forward and when spot forex can be treated like forex forwards contracts qualifying for the lower 60/40 tax rate. Each owner will need to make that decision on their own"
On our Limited Partner's K1 Profit Distribution tax form, "we have treated it as Section 988 and included a footnote on the return about possible reporting as 60/40."
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To help substantiate the ability to elect section 1256 capital gains treatment as opposed to section 988 where gains are treated as ordinary income, please follow these Internal Revenue Code references:
Section 988(a)(1)(B) opt-out election: “A taxpayer may elect to treat any foreign currency gain or loss attributable to a forward contract, which is a capital asset in the hands of the taxpayer and which is not a part of a straddle, as capital gain or loss…” The election does not mention spot trades. That’s okay since Reg. 1. 988 equates forward contracts with spot forex trades. Reg. 1. 988-1(b) defines a spot forex contract, and 1.988-2(d)(i)(ii) provides that a spot contract that does not result in taking or making delivery of the nonfunctional currency is analogous to a forward “or similar contract.”
Section 1256(g)(2) foreign currency contracts:
After filing a capital gains election, if the trades taken met three IRS requirements for Section 1256(g)(2) listed below, they may use Section 1256.
Section 1256(g)(2) requirements:
(i) “Which requires delivery of, or the settlement of which depends on the value of, a foreign currency which is a currency in which positions are also traded through regulated futures contracts
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Again, we recommend that you invest with SGLP through a Self Directed IRA to defer taxes until retirement and we re-iterate the encouragement to review your taxes with your own tax professional and ask you do not accept information on this page, in its entirety, as professional tax advice.
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What you will need from us to file taxes at the end of each year under 988 or 1256 tax election?​
Brokerage Statements - We facilitate statements on a monthly basis.
K-1 Profit Distribution Tax Form - We facilitate on an annual basis. Our fiscal year runs Jan 1 - Dec 31.
Commodity Pool Agreement - You will receive when you create an account.
