Mark-to-market election
Also: mark-to-market election, Section 475(f) election, trader tax status election
An election under IRC Section 475(f) that lets qualifying traders treat their securities as marked-to-market at year-end. Converts capital gains and losses into ordinary gains and losses.
A mark-to-market election under Section 475(f) is available to taxpayers who qualify as traders in securities under case law and IRS guidance. The election converts capital gains and losses into ordinary gains and losses, eliminates the $3,000 annual limit on net capital losses, and makes the wash-sale rule inapplicable. It requires a statement filed by the original due date of the return for the year before the election year (April 15 of year X for election year X+1).
Example: a high-frequency day trader who makes 800 round-trip trades per year and meets the facts-and-circumstances tests for trader status files a Section 475(f) election by April 15, 2025 to apply for 2026. Starting January 1, 2026, all securities held at year-end are marked to market on December 31. A $250,000 loss on open positions reduces ordinary income with no $3,000 cap.
Common mistake: confusing this with mark-to-market for investments. Ordinary investors in RSUs and ISOs do not qualify for trader status and cannot make this election.
Mark-to-market matters only for full-time traders. For tech employees holding equity awards, it is almost never applicable. Included here because it appears frequently in tax research.