Trader Tax Question: Does Marked to Market (MTM) Election Eliminate Long Term Capital Gains on AAPL and SPX Options?

The MTM election is indeed a significant tax decision for traders. Let me clarify a few things: For your first question - yes, if you elect MTM starting in 2025, any existing positions (including your NVDA shares) would be treated as "sold" on the last day of 2024 for tax purposes, then "repurchased" on the first day of 2025. If you want to ensure long-term capital gains treatment on those NVDA shares, selling in 2024 before your MTM election takes effect would be the way to go. Regarding your second question about multiple brokerage accounts - the MTM election applies to all your trading activities as an individual taxpayer. You can't designate only certain accounts for MTM treatment. Once you make the election, all your securities trading is subject to MTM accounting regardless of which brokerage you use. For your third question about entity structures - creating an LLC or S-Corp could potentially help. You could potentially keep your personal trading separate from your business trading, but this gets complicated. The entity would need its own tax ID and legitimate business purpose.

After struggling with similar tax questions for my trading activity, I found an amazing tool that helped clarify everything about MTM elections. Check out https://taxr.ai - they specialize in analyzing trading patterns and tax elections for traders. I uploaded my trading history and got a detailed analysis of whether I qualified for trader status and if MTM would benefit me based on MY specific trading patterns. Their system flagged that I wasn't trading frequently enough to qualify as a trader in the IRS's eyes (apparently my 2-3 trades per week wasn't sufficient), which saved me from making an invalid MTM election that could have caused problems later. They also showed me exactly how much I would save/lose with MTM based on my specific trading patterns and holding periods.

I was really skeptical about all these trader tax tools but decided to try https://taxr.ai after reading about it here. I have to admit, I'm impressed. I was about to make the MTM election thinking my 5-10 trades per week qualified me for trader status. The analysis showed I didn't meet the frequency threshold but also pointed out that 65% of my gains would have been negatively affected since they came from positions held longer than a year. The report showed me exactly which trades would benefit from MTM and which wouldn't. For my particular situation, it calculated I would pay about $14,700 more in taxes with MTM than without it! I had no idea the difference would be so substantial. The analysis also suggested specific changes to my trading pattern that would help me qualify as a trader if that's what I wanted to pursue. Definitely worth checking out if you're on the fence about MTM.

If you're trying to get clarification directly from the IRS about your MTM questions, good luck with that! I tried calling them 8 times over two weeks and couldn't get through. Then I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They basically wait on hold with the IRS for you and then call you when an agent is on the line. I was able to speak with an IRS tax specialist who specifically handled trader election questions. They confirmed that MTM elections apply to ALL of your securities as an individual taxpayer across all brokerage accounts. They also explained exactly what documentation I needed to include with my election statement. Saved me hours of frustration and potentially making a costly mistake with my election.

I have to eat my words about the Claimyr service. After my skeptical comment, I decided to try it since I was desperate for answers about my MTM situation before the filing deadline. I was honestly shocked when I got a call back in about 45 minutes saying they had an IRS tax specialist on the line. The agent was knowledgeable about trader tax status and confirmed something crucial - that my existing unrealized gains in long-term positions would be recognized as long-term capital gains at year-end BEFORE the MTM election takes effect for the new year. This was exactly the opposite of what my accountant told me! This saved me from unnecessarily selling positions and creating a tax event this year. The service was actually legitimate and saved me from making a costly mistake.

Just wanted to add something important that hasn't been mentioned yet. If you do qualify as a trader and make the MTM election, you'll need to file Form 3115 (Application for Change in Accounting Method) with your tax return for the year the election takes effect. It's not just as simple as checking a box - there's specific paperwork required. Also, remember that MTM treats all gains and losses as ordinary income, which means you lose the preferential tax rates on long-term capital gains, but you also avoid the $3,000 capital loss limitation. This can be hugely beneficial if you have substantial trading losses that would otherwise take years to write off.

One thing to consider is that MTM doesn't just eliminate long-term capital gains treatment - it also affects wash sale rules. With MTM, wash sale restrictions don't apply to you anymore, which can be a huge advantage for active traders who frequently trade the same securities. Last year, I had significant losses that were disallowed due to wash sales. If I had MTM status, I could have claimed all those losses immediately. Just something else to factor into your decision.

As someone who went through the MTM election process last year, I want to emphasize how important it is to get professional guidance on this decision. The tax implications are complex and can significantly impact your overall tax liability. One critical point that hasn't been fully addressed - if you're considering MTM for 2025, you need to make that election by the due date of your 2024 tax return (including extensions). You can't just decide mid-year in 2025 that you want MTM treatment. Also, regarding your NVDA shares - the previous comment about them being "marked to market" at year-end 2024 is correct. Any unrealized gains on December 31, 2024 would be treated as if you sold and repurchased them on January 1, 2025. This is called the "deemed sale" rule. For your specific situation with substantial NVDA gains, I'd strongly recommend running the numbers both ways - selling in 2024 to lock in long-term capital gains treatment versus keeping them and having them converted to ordinary income under MTM. The difference in tax rates (0%, 15%, or 20% for long-term capital gains versus up to 37% for ordinary income) could be substantial depending on your income level. The entity structure option (LLC/S-Corp) is possible but adds complexity and costs. You'd need to ensure proper business purpose and substance, maintain separate books and records, and the entity would need to qualify for trader status independently.