The mark-to-market (MTM) election — under IRS Section 475(f) — is an accounting choice available to traders who qualify for Trader Tax Status. It treats all open positions as if sold at their market value on the last day of the year, so all gains and losses are recognized annually as ordinary income or loss. (General education, not tax advice.)
What it changes
The biggest benefit: MTM eliminates the wash-sale rule for the trader's business positions — no more tracking 30-day windows or having losses disallowed and deferred. It also removes the capital-loss limitation: trading losses become ordinary losses, which can offset other ordinary income without the usual annual cap. For an active trader with a losing year, that flexibility can be significant.
The trade-offs
MTM isn't free. You give up the favorable long-term capital gains rate on trading positions (everything becomes ordinary income), and you lose the 60/40 treatment on §1256 contracts if they're part of the election. You also pay tax on unrealized year-end gains — profits you haven't cashed out. And the election is generally binding going forward, with a specific and unforgiving filing deadline.
Mark-to-market trades the wash-sale headache for ordinary-income treatment. Whether that's a win depends entirely on you.
The takeaway
The MTM election can be powerful for a qualifying, high-volume trader — especially one plagued by wash sales — but it's a consequential, largely irreversible decision with real downsides and a strict deadline. This is textbook "consult a specialist" territory: a qualified trader-tax professional should model your specific situation before you elect. This article is a map, not the advice.