Since claiming trader status means that trading is your primary source of income, your trading should count officially as a "business." Therefore, I believe a change should be made that allows anyone who elects MTM accounting to be able to retroactively convert past capital gains into regular business gains and losses, so long as they have claimed trader status during those years. Since MTM basically puts a rift between past gains/losses vs future income/loss, there are real disadvantages for claiming such status if one has already traded for a few years, regardless of outcome. Given that trading as a business was a relatively new area taxwise (until a couple years ago, even determining whether or not you were a trader was unfamiliar territory for most ppl's accountants), is this not an unreasonable request?
If you are talking about using past losses above the current 3K limit to offset any gains I agree. Say you had losses of 10K last year, then in my opinion you should not have to pay any tax until you've made that money back as long as trading is your only source on income. I'm not quite sure how you would use past gains- I doubt if ever you will receive money back from the government for taxes already paid to make up for losses in a subsequent year. triple
That's the advantage of using MTM accounting, you can carry backwards or forwards any losses or gains as a regular business. However, being unable to convert prior capital gains seems an unnecessary restriction, as those who have filed for trader status must have achieved their gains through short-term trading, not investing. In regards to your example, if you had losses of 10k last year, you currently do not have to pay any taxes for the first 10k you make this year, regardless of whether you traded for it or just invested -- it's all considered capital gains and can be offset. The 3k limit only applies to other types of income (if you elect MTM, then your income for this year becomes business income and cannot be fully deducted against your capital loss of 10k last year -- it would only be 3k max then). It would seem fair to me that as long as you filed as a trader for the previous year, you should be able to convert any gains or losses sustained that year into regular business gains/losses if you decide to convert to MTM this year. Sry, I'm not really familiar with the terminology, so if anyone catches anything wrong in my post please don't hesitate to point it out.
As far as I know an investor who has any capital losses can only use 3k of that per year- 10k in losses would have to be spread over three+ years against any future income. My question is would this change if you elected MTM status? Would you then be able to offset the entire loss amount against gains in the following year if trading is your only source of income and if you are running it like a business?
Despite the obnoxiousness of capital loss restrictions, the stationary AMT thresholds are even worse.
You can be a part-time trader and use MTM accounting. At least that is what my tax preparer has said (and done). g