first time MTM filer. Have 30000 Capital Loss Carryover. Will my gain this year offer any of the previous loss? if Yes, where do I enter that carryover loss?

[shouyi3]

Hi, trying to decide if I should do MTM this year or next. I have $30K Capital Loss carryover. if filing without MTM, my trading gain this year will offset the entire amount.

I have done the MTM election and can file as trade tax status. But if I use form 4797 for my trades, will I still be able to offset the previous trading (Capital) loss? if I can, where will this loss be entered? on Schedule C?

Thanks for any help you can provide.

[Mike9241]

under the 475(f) MTM election the gain/loss on 4797 (part II line 10) is ordinary not capital so you can only write off $3,000 of capital losses.  in addition, if you properly elected 475(f) for 2021 you can not ignore it and treat your trading gains as capital gains. your trading gains/losses go on 4797 while other expenses of your trading go on schedule C. 

If you've made a valid election under section 475(f), the only way to stop using mark-to-market accounting for securities is to file an automatic request for revocation under Revenue Procedure 2019-43, Section 24.02. Under that revenue procedure, the request for revocation must be filed by the original due date of the return (without regard to extensions) for the taxable year preceding the year of change (the year of change is the first taxable year the revocation is to be effective). This revocation notification statement must be attached to either that return or if applicable, to a request for extension of time to file that return. Late revocations won't generally be allowed except in unusual and compelling circumstances.

so unless you filed a revocation election with a timely filed extension for 2021, you'll have to wait until the due date for filing your 2022   (4/15/2023) return to get off for the tax year 2023. see a tax pro to do this. 

[Rick19744]

Your post and facts are not clear:

• Initially your heading states you are a first time MTM filer.
• Next you indicate you are trying to decide whether to file MTM
• Then you indicate you have done the MTM election
• You also may have a misunderstanding of MTM and trader tax status TTS).   You can have TTS and not elect MTM.  

So @Mike9241 has provided information, but based on the above, not sure where you fit.

Additionally, if you have a MTM election and then request to revoke this election, you must wait 5 years before making the election again.

A couple of other comments:

• In general it is best to make a MTM election if you have close to a clean slate with respect to capital loss carryovers.
• However, if you have capital loss carryovers and are still losing $$ in your first quarter, you should consider making the MTM election to avoid compounding to the capital losses.
• The reverse is also a planning guide.  If you have capital loss carryovers and are generating capital gains in the first quarter, you should consider waiting to file the MTM election to utilize those gains to offset your capital losses.

This is can be a complicated area and not for individuals that don't really understand the tax implications as the tax lesson can be painful and costly.

[shouyi3]

thanks for the quick reply. Guess I'll just have to carry the loss with me then. Do have an investment account I can use to offset some of it.

[shouyi3]

Thanks for your reply. Yes, I have done the MTM election. Thought I have a choice to either change or not change the accounting type. Guess I was wrong.

[leeloo]

You need to make your mind up whether you are an investor or a trader. Just because they both deal with stock trades, it doesn't mean you can opt for the one in any given year that benefits you. It is possible to hold certain stocks long term for investment while having another portfolio for short term trades.

Traders seek to produce income for a livelihood and devoted significant time to running their business. Traders can choose to use the mark-to-market rules, investors can't. Do you actually have a business that involves stock trades? 

Special rules apply if you're a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business. To be engaged in business as a trader in securities, you must meet all of the following conditions:

• You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
• Your activity must be substantial; and
• You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a securities trading business:

• Typical holding periods for securities bought and sold;
• The frequency and dollar amount of your trades during the year;
• The extent to which you pursue the activity to produce income for a livelihood; and
• The amount of time you devote to the activity

If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).