His One-Ounce Gold Trade Was Still Open. The IRS Treated It as Sold Anyway.

A retiree in his early seventies, uneasy about the dollar, buys a one-ounce gold futures contract and leaves the position open. He does not sell before the calendar turns because he assumes the gain can wait until he actually closes the trade.

Tax law has another clock. If the contract falls under Section 1256, the IRS treats the open position as though it were sold for fair market value on the last business day of the tax year. The trade stays open in his brokerage account, but the gain does not stay unrealized for tax purposes. For a retiree collecting Social Security, that paper sale can also push more of his benefit into taxable territory and, later, help raise his Medicare premiums.

The IRS Creates a Sale Date He Never Chose

Regulated futures contracts are among the investments generally covered by Section 1256 of the Internal Revenue Code. Open contracts are marked to market at year-end, so the holder recognizes the difference between the contract’s tax basis and its fair market value even without closing the position. That recognized amount is taken into account when the contract is eventually disposed of, preventing the same gain from simply being taxed twice.

The character of the gain gets its own unusual treatment. Under the 60/40 rule, 60% is treated as long-term capital gain and 40% as short-term capital gain regardless of whether he held the contract for six months, six weeks or six days. Losses are recognized as well. That split can favor a short-term trader because most of the gain receives long-term treatment. The trade-off is timing. He cannot simply keep a profitable qualifying futures position open through year-end and choose to recognize the appreciation later.

CME Group even offers a one-ounce gold futures contract, allowing an individual investor to make a relatively small gold hedge while still falling under the unusual tax rules that apply to qualifying futures.

Social Security Can Feel a Gain From an Open Trade

Capital gains do not count under the Social Security retirement earnings test, so the Section 1256 gain does not cause benefit withholding simply because it appears on the tax return. But it can matter when the IRS determines whether Social Security benefits themselves are taxable.

The calculation generally combines one-half of Social Security benefits with other income, including tax-exempt interest. For a single filer, benefits can begin becoming taxable when that combined figure exceeds $25,000; for a married couple filing jointly, the starting point is $32,000. At higher income levels, up to 85% of benefits can be included in taxable income. A year-end futures gain can therefore produce a second tax consequence by pushing more of his Social Security benefit into taxable territory.

Medicare Can Remember It Two Years Later

For someone already on Medicare, the longer echo can be the income-related monthly adjustment amount (IRMAA). Social Security generally uses tax information from two years earlier to determine whether a beneficiary owes higher Part B and prescription-drug premiums.

In 2026, the standard Part B premium is $202.90 a month. IRMAA begins when modified adjusted gross income (MAGI) exceeds $109,000 for an individual or $218,000 for a married couple filing jointly. Crossing the first threshold adds $81.20 a month to Part B, with larger surcharges at higher tiers.

Those are 2026 figures based generally on 2024 income. A gain recognized in 2026 would ordinarily feed into a later Medicare determination, when the applicable thresholds and premiums may be different. A profitable futures trade also is not among the life-changing events Social Security lists for requesting a lower IRMAA based on reduced income.

Before Leaving the Position Open

The important number is not only the gain showing in the trading account. It is where that gain leaves total income once Social Security taxes and future Medicare premiums enter the calculation.

1. Confirm the contract’s tax treatment before year-end. Section 1256 treatment applies to qualifying contracts, not automatically to every way of owning gold.
2. Run the gain through the Social Security calculation. A modest trading gain can matter more when income is already close to a benefit-tax threshold.
3. Check the Medicare ripple separately. Someone near an IRMAA tier may be affecting a future premium bill before realizing it.

He never clicked “sell,” and the position stayed open. For tax purposes, neither fact bought him another year.

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