Why isn't my capital loss carryover reducing my tax from short-term capital gains?

Question

I am using Turbo Tax for these calculations. Before entering my investment info/capital gains, I had a federal refund of $272. After entering my capital gains and investment info, I owed $1900, for a change of around $2372 due to investments. My AGI (after itemized deductions) is in the 80k tax bracket, which is 22%. I am filing as married jointly.
I did a fair amount of day trading options, so these are all short-term capital gains, which are just taxed at ordinary income levels, right?
Numbers from 1099-B:
Proceeds : 870,027
Cost (or basis) : 866,589
Wash sale loss disallowed : 8554
870,027 - 866,589 = 3438, plus 8554 wash sales = 11,992, which is what TurboTax is displaying as their summary for this income. But 22% of this is $2638.
There is also a Section 1256, -$1200, which I thing is for options contracts held at the end of the year, unrealized gains. I had to look this up, still don't quite get it, but it sounded like these unrealized gains were somehow supposed to be counted.
So if I take off this $1200, 11992 - 1200 = 10,792 x 22% = $2374, which is almost exactly the change I'm seeing in TurboTax.
However, I had a capital loss carryover of $4800. I thought this was supposed to be a direct reduction from my capital gains, but it looks like it's not counting at all.
Why isn't my capital loss carryover reducing my capital gains taxes?

Bob Baerker · Answer

I am not a tax adviser nor do I have any personal experience with this situation so take this with a grain of salt.  As I understand it, Section 1256 contracts are marked-to-market daily and the  unrealized gains and losses open at the end of the year are reported at the end of the year for tax purposes.
Here are some references:

A Section 1256 contract
is a type of investment defined by the Internal Revenue Code as a regulated futures contract, foreign currency contract, non-equity option, dealer equity option, or dealer securities futures contract. What makes a Section 1256 contract unique is that each contract held by a taxpayer at the end of the tax year is treated as if it was sold for its fair market value, and gains or losses are treated as either short-term or long-term capital gains.

General rule

(1) each section 1256 contract held by the taxpayer at the close of the taxable year shall be treated as sold for its fair market value on the last business day of such taxable year (and any gain or loss shall be taken into account for the taxable year)...

This would explain why the end of year $1,200 loss is being utilized by TurboTax.

Why isn't my capital loss carryover reducing my tax from short-term capital gains?

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