Box spreads use options to synthetically borrow against a portfolio at a low, fixed rate. (currently below ~4% in many cases)

The financing cost shows up as an unrealized loss on the options positions. Because box spreads typically use Section 1256 contracts, all open positions are marked to market on 12/31, whether you close them or not.

Section 1256 gains and losses receive special treatment:

• 60% long-term capital / 40% short-term capital
• Applies regardless of holding period or whether the position was closed

That mark-to-market loss is what creates the potential tax benefit.

But you only get the benefit if it’s reported correctly.

Your CPA must include Form 6781 so the Section 1256 loss is properly recognized. If it’s missing, the deduction may not show up at all.

I use box spreads as one tool among many:

• To access lower-cost, potentially deductible borrowing
• To avoid forced selling of appreciated positions
• To integrate leverage into a broader tax-aware portfolio design