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Frequently Asked Questions

What is the 475 (F) election?

“Under Section 475 (f), the Taxpayer elects to adopt the mark-to-market method of accounting for the tax year ending Dec. 31, 2019, and subsequent tax years. The election applies to the following trade or business: Trader in Securities as a sole proprietor (for securities only and not commodities/Section 1256 contracts).”

What are the tax benefits of Section 475 trades?

Historically, the chief tax benefit of Section 475 was deducting trading losses without limits. Section 475 trades are exempt from onerous wash sale loss adjustments on securities, which can trigger a tax bill on phantom income at year-end.

Does SEC 475 apply to ordinary gain or loss?

In addition, the regulations 34 provide that Sec. 475 does not apply to any security that the taxpayer has never held in connection with his or her activity as a dealer or trader. Thus, the statute does not change the rule that for the gain or loss to be ordinary, the security must relate to a trade or a business.

What is a 475 mark to market?

I.R.C. §475 requires dealers in securities to mark their securities to market. I.R.C. §475 allows traders in securities or commodities, as well as dealers in commodities, to elect to mark-to-market their securities or commodities to market annually.

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