Mark-to-Market Election (Section 475) Explained

For a qualifying active trader, the mark-to-market (MTM) election under Section 475 is one of the most powerful tax moves available, and one of the easiest to miss because the deadline is unforgiving. Here's what it does and who should consider it.

What is the Section 475 MTM election?

Normally your positions are taxed when you close them. Under a 475 election, open positions are treated as if sold at year-end (“marked to market”), and your trading gains and losses become ordinary income.

Why traders elect it

No more wash-sale rule: the single biggest accounting headache for active traders disappears.
No $3000 capital-loss cap: trading losses become ordinary and can offset other income.
Cleaner year-end: far simpler reconciliation for high-volume traders.

The catches

You generally need Trader Tax Status first: MTM is for traders operating as a business. (Check whether you qualify for Trader Tax Status.)
The deadline is strict: the election must typically be filed early in the tax year.
It's sticky: revoking later requires its own process, so it's a deliberate decision.

FAQ

Do I lose long-term capital gains rates?

On trading positions under 475, yes, gains are ordinary. Many active traders weren't getting long-term rates anyway.

Is there a 4-year spread when I switch to 475?

Switching to 475 is a change in accounting method, and the catch-up amount is called a section 481(a) adjustment. A positive adjustment is generally spread over four years. A negative adjustment is generally taken in the year of the change. For most traders the amount is small, because it only covers positions open at the start of the year. Your CPA reports it with Form 3115.

Do 475 gains qualify for the QBI deduction?

They can. Trading counts as a specified service business, so the QBI deduction phases out above the income limits. Below those limits, ordinary gains under 475 can count. Talk to a CPA before relying on it.

Can I elect MTM without TTS?

The election is designed for qualifying traders; getting TTS right comes first.

Get it right: My Trader Tax Status (TTS) Guide for 2026 covers the 475 election, deadlines, and documentation, and the pricing page has it bundled with the daily Trade Plans.

The election only makes sense on top of Trader Tax Status, and the two are decided separately. How to apply for Trader Tax Status covers the claim itself and where the real deadline sits.