Section 1256 trades include all futures trades, as well as futures options. They also include option trades on cash-based indices ($OEX and $SPX, and especially $VIX), but not SPY or QQQ, for example, for the underlying there is an ETF, not cash.
A Section 1256 trade is treated as 60% long-term and 40% short-term, no matter if the position was held for one minute or one year. Also, each Section 1256 contract held at the end of the year should be marked to market at year-end, and the resulting gain or loss reported as a gain or loss for that year.
These should be itemized separately and reported on your Schedule D as one line in the short-term section and one line in the long-term section. Hence, one needs to keep track of this unrealized portion from year to year, as it needs to be reversed out the next year.
For subscribers of The Option Strategist Newsletter, some of last year’s most profitable trades fell into this category – notably the Heating Oil – Gasoline spread (which used futures) and the S&P futures put ratio spreads (which is another reason to favor the S&P put ratio spread over the SPY put ratio spreads).
You should consult your tax advisor about this subject when preparing your year-end tax returns.