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Mark-to-Market Election for Traders

As a trader (including day traders), you report all of your transactions on Form 8949. If you are in the business of buying and selling securities for your own account, you may also file a Federal Schedule C to report any expense items.

There is no election that needs to be made for a Trader reporting sales on the Form 8949. You would report them on the Schedule D and will be subject to the $3,000 capital loss limit. Some traders make what is called a "Mark-To-Market" election in order to deduct the full amount of the loss rather than $3,000 on your return. However, the election cannot be changed in a future year without IRS permission. If the election is made, any gains in a future year are required to be reported as ordinary income not benefiting from the lower capital gains tax rates. Note that this election, if made, is not good until the following tax year.
 
If you are a trader entering your transactions on the Form 8949, enter them under the Investment Income topic in the Federal Q&A.

If you have or ever do make the Mark-To-Market election, then each transaction is to be reported in Part II of the Federal Form 4797. If you are interested in making the Mark-To-Market election, you should review the IRS Instructions for Schedule D Instructions, on page D-6, under the sections titled Traders in Securities and Mark-To-Market Election for Traders.

As mentioned above, you will need to complete Form 4797 Sale of Business Property and check the appropriate box on the form to report the transaction in Part II of the Form 4797. Please see Notebelow regarding number of transactions supported by TaxAct.
 
To enter information to be reported on Form 4797 Sale of Business Property

  1. From within your TaxAct return (Online), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Investment Income to expand the category and then click Gain or loss on sale of investments
  3. Click Ordinary gain or loss (Form 4797)
  4. Click Add to create a new copy of the form or click Review to review a form already created
  5. The program will proceed with the interview questions for you to enter or review the appropriate information
When entering Mark-to-Market transactions, the Type of Property does not need to be designated. 


Note: TaxAct currently allows 40 transactions for Form 4797, Part II for electronic filing. If you have more than 40 transactions, you can still use TaxAct to enter the data, but would need to file a paper return. Enter a summary Sale of Business Property in the program with the description of See Attached and the totals. Attach a supporting document or spreadsheet to the return that would support all the transactions.


Additional Information:

IRS Topic 429 Traders in Securities (Information for Form 1040 Filers)
IRS Instructions for Form 4797
IRS Publication 550

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