The IRS has stated that the "tax treatment of sales of securities held in connection with a trading business depends on whether a trader has previously made an election under section 475(f) to use the mark-to-market method of accounting."
If the Mark to Market Election is not Made by the Taxpayer
If the mark-to-market election was not made, then the gains and losses from sales of securities are treated as capital gains and losses that must be reported on Form 1040, Schedule D. Both the limitations on capital losses and the wash sale rules continue to apply.
If Mark to Market Election is made by the Taxpayer
If the taxpayer has made a mark-to-market election on a timely basis, then the gains and losses from sales of securities are treated as ordinary gains and losses (except for securities held for investment — see above) that must be reported on Part II of Form 4797, Sales of Business Property. Further, neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting.
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