Section 475 Election

A Section 475 election is a tax status available to professional traders in the United States that allows them to treat securities as sold for their fair market value on the last business day of the tax year. By making this election, traders exempt themselves from the limitations typically applied to capital losses, allowing them to deduct losses against ordinary income.

This election is often sought by high-volume traders who frequently hold positions across tax year boundaries. It essentially forces the mark to market accounting method upon the trader.

Once elected, the trader must report all gains and losses as ordinary income or loss rather than capital gains. This status requires the trader to be engaged in a business of trading, rather than just an investor.