CAP Funds optimize both tax efficiency and capital efficiency to maximize investor returns through strategic structuring and advanced margin management.
Section 1256 provides significant tax advantages for futures-based investment strategies, creating a lower effective tax rate and enhanced after-tax returns for investors.
60% long-term, 40% short-term capital gains treatment
Annual realization regardless of holding period
Exempt from wash sale rule limitations
3-year carryback for net losses
Federal Tax Bracket: 37% | State: Varies | Wash Sale Rules: Do Not Apply to 1256
| State | Top State Tax Rate | 1256 Blended Rate | Short-Term Rate |
|---|---|---|---|
| California | 13.3% | ~40.1% | ~50.3% |
| New York (NYC) | ~10.9% + 3.88% NYC | ~41.6% | ~51.9% |
| New Jersey | 10.75% | ~37.6% | ~47.75% |
| Hawaii | 11.0% | ~37.8% | ~48.0% |
| Minnesota | 9.85% | ~36.7% | ~46.85% |
| Oregon | 9.9% | ~36.7% | ~46.9% |
| Illinois | 4.95% (flat) | ~31.75% | ~41.95% |
| Oklahoma | 4.75% | ~31.55% | ~41.75% |
Across most high-tax states, Section 1256 contracts yield ~9–11 percentage points lower effective tax rates compared to traditional short-term strategies — and avoid wash sale limitations.
CAP Funds allocate a significant portion of assets to trading regulated futures contracts, which qualify under Section 1256, providing investors with:
CAP's futures-centric approach avoids disallowed losses due to wash sale rules, maximizing realized tax losses for investors and enabling more aggressive tax loss harvesting strategies.
Result: Full deductibility of losses without 30-day waiting periods
Investors in CAP Funds generally pay lower blended tax rates than traditional equity investors, improving after-tax returns—particularly valuable for high-income or active traders.
Benefit: Systematic tax alpha through preferential rate structure
By intentionally structuring exposure through instruments governed by Section 1256 and using volatility-timed allocations, CAP Funds optimize timing and character of gains.
Outcome: Systematic tax alpha generation through strategic structuring
*Tax treatment may vary based on individual circumstances. This information is for educational purposes only and should not be considered tax advice.
Investors should consult with their tax advisors regarding the specific tax implications of investing in CAP Funds based on their individual situations.
Section 1256 treatment applies to qualified futures contracts and may be subject to changes in tax law. Past tax benefits do not guarantee future tax treatment.