How Does the Mark-to-Market Election (Section 475) Change the Ordinary Vs. Capital Income Distinction?

The Section 475(f) mark-to-market election fundamentally changes the distinction by treating all gains and losses from trading as ordinary income and ordinary loss. This means the distinction between short-term and long-term capital gains is eliminated.

The primary benefit is that ordinary losses are fully deductible against ordinary income, bypassing the $3,000 capital loss limitation, which is highly beneficial for traders with net trading losses.