IRC §475(f), IRC §162
Trader Tax Status
Trader Tax Status treats qualifying trading activity as a business rather than passive investing. When paired with a timely Section 475(f) mark-to-market election, losses can become ordinary and are not limited to the $3,000 annual capital loss cap.
Who this may apply to
- Trade frequently and continuously throughout the year
- Have hundreds of trades and short holding periods
- Treat trading as a regular business activity
Strategy connections
Works well with
- Home Office Deduction: Qualifying traders may deduct ordinary and necessary business expenses, subject to home-office rules.
What could block this
- Trading activity is not substantial, regular, frequent, and continuous
- A Section 475 election was not timely made for mark-to-market treatment
Important considerations
- Trader Tax Status is facts-and-circumstances based; trade count alone is not enough
- A late Section 475(f) election usually cannot be fixed retroactively
- Mark-to-market treatment can accelerate gains as well as unlock ordinary losses
Professional support
Trader Tax CPA
Will evaluate whether your trading activity qualifies, prepare the Section 475 election if appropriate, and document the business activity.
Timing
Section 475(f) elections generally must be made by the due date of the prior year return, without extensions, for an existing taxpayer. Review this before filing.
Official sources
Reviewed 2026-07-24