Section 475 Mark-to-Market Election

Section 475 is a provision in the United States tax code that allows traders to elect mark-to-market accounting for their trading activities. By making this election, traders treat their securities and certain financial derivatives as if they were sold at fair market value on the last business day of the tax year.

This election allows traders to treat gains and losses as ordinary income rather than capital gains. This is advantageous because it removes the limitations on the deduction of capital losses, which are typically capped at a certain amount per year.

It also exempts traders from the wash sale rules, allowing them to realize losses on positions and immediately repurchase them. However, it requires a significant administrative burden, as every trade must be accounted for accurately.

It is generally intended for professional traders who engage in frequent, substantial trading activity. The decision to make this election is irrevocable without special permission from tax authorities.

It is a strategic tool for managing the tax consequences of high-frequency trading.