In the first year of Mark to Market (M2M) accounting, what happens to existing long term holdings?

[Antyrael]

I elected mark-to-market this year for the first time and am trying to file taxes for the first time as a trader.  Heading into this year, I had a long term position (from 2018) that I sold this year for a loss.  

It was my understanding that on January 1st of the year you start M2M accounting, you take all securities at their present value for purposes of accounting.  (i.e., if you elect M2M accounting and on January 1st, a long term holding XYZ is at $100, and you sell it in March for $60, there is a $40 M2M loss).  I thought you had to take special steps to segregate long term holdings if you wanted long term capital gains treatment.  

I would like to consider this loss as a M2M loss, but I was told that it is ineligible because it was long-term.  Is that right?  

[ColeenD3]

This IRS passage leans toward calling them long term Schedule D transactions.

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.

[fanfare]

you must segregate your investment activity.

The best way to do that is to use separate accounts.

[Antyrael]

Thank you.  I qualify as a trader, but was not sure if there was some rule preventing me from claiming this particular holding as a M2M loss because I held it long term before making the M2M election. 

[ColeenD3]

You were not a trader when you were holding property long term. At that time, you were an investor.

[fanfare]

your investments must be segregated from your MTM activity which goes on Form 4797.

the best way to do that is to use two accounts.

OOPS, I already said that !