Trader Tax Status with long term gains only

[sam992116]

In order file/claim trader status one needs to show Volume, frequency, holding periods and money at risk.

I have 1099 gain and losses. Lets say right now I am $10k long term and $10k short term gains.

But I also have 1256 gains. 1256 gains split into 60/40.  Lets say I have total gain of $20K via 1256 contracts , which will split as  $12k long term and $8K short term gain.

Now total gain is

$22K long term

$18K short term

Here is situation, I have few Unrealized losses from 1099 which I am thinking about realizing it this year. Let say I have short term 1099 losses of $18 K. This will result in only $22K long term gain.

Sch D  shows long term and short gain from 1099 and from Form 6781 and will show losses are coming from 1099 trades.

Q: Would it effect my tax filing as TTS (I have about 1500 trades for this year)?

Q: Traders have losses, but do I have show short term gains to qualify as Trader (trading is short term buy/sell activity)?

I have some income from Dividends and Capital gain distributions as well and there is no other income.

Dividend, distribution and short term gains are taxed at ordinary tax rate.

I looked online for year 2023 threshold is $44625. So If my overall income (from Dividend, distribution, and short term gain) is less than $44625 then what will be tax rate from my long term gains.

Q: For long term gain tax rate 0% (0 -44625) , 15% ($44626 -492300) or 20%  (> 492300) rate. Is your income threshold or capital gain amounts are taxed at those rates?

Let put it other words

Lets say my Dividend, interest, distribution, short term gain is Less than $44625

But long term gain is $50K.

Q: How it will be taxed?

Q: Would it effect my TTS? I am claiming to be a trader most of income is coming from passive activity and long term gains? or at least keep some of short term gains and realize those losses next year?

[Anonymous_]

Can you further explain the exact nature of your apparent confusion?

You won't lose trader status merely because you sell several long-term holdings. 

[Mike9241]

Did you make a proper 475(f) election? A trader is not required to make this election. If you didn't then long-term, short-term holding and wash sale rules still apply. 

If you did the following applies

Section 1256 contracts
■ 475(f)(1) - Securities are defined in 475(c)(2)
– Flush language states that “security” shall not include any contract to which section
1256(a) applies.
– Therefore, 1256 contracts are generally not a security within 475(c)(2) and thus outside
the scope of 475(f)(1) election.

Other securities when the 475(f) election is made

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). This allows long-term capital gain on securities so designated.

[sam992116]

Thanks.

I should have been little more clear. My question was more of year end tax planning.

Right now I have both long term and short gains. I also have short Unrealized losses. If use them all this year, my short term gains will be $ 0. All I will left with, Dividend, interest, distributions (ordinary income rate investments, and all of less than $44625) and long term gains.

My question was what will be tax rate for Long term gains.

First:   $44625 

Second : 44626 -  492300

Third: $492301 +

2nd part of my questions was, would it effect my TTS by not having short term gain income? There is short term trading but not short trade gains.

[Anonymous_]

Your capital gain tax rate is going to be based on your taxable income (not just gains).

See https://www.irs.gov/taxtopics/tc409

[Anonymous_]

It would not be a bad idea to have separate accounts for your regular trades and your trades that would qualify you for TTS.

[Mike9241]

@sam992116 have you made a valid 475(f) election? if so trading gains and losses are treated as ordinary income, not capital gains. also at year-end trading securities are marked-to-market so unrealized gains and losses are, in fact, realized for tax purposes 

this does not apply to 1256 contracts. IRC 475(c) last sentence

[sam992116]

no 475 election. 1256 Contract helps when to wash rules as there are none for these types of securities.

[sam992116]

Thanks.

Lets say if I use 1 account only to trade 1256 Contracts. Never traded any 1099 securities. Have good amount of trades (4 trade/day and about 700/year with over 80% frequency). That would qualify me TTS.

That would solve TTS and over lap of trades/ WASH rules and long term investment sales.

[Mike9241]

1256 contracts under the code are split 60% LT and 40% ST regardless of trader tax status. 

[ahujat]

So, if 1256 contracts are taxed as 60/40 irrespective of the Trader tax status, does it mean it becomes your investment income, since if you report it on Schedule C, it will be taxed as normal Profit (or Loss)? No?