Day Traders Who Missed the Mark-to-Market Deadline Can Still Lock It In for Next Year
Missing the mark-to-market deadline feels like a door slamming shut, but Section 475(f) leaves one more window open for traders willing to act before their 2026 return comes due.
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Most day traders find out about the mark-to-market election after a bad year, when they learn their trading losses are limited. By then, the window for that year has usually closed. Traders who missed it for the 2026 tax year can still file in time for 2027.
The rule comes from Section 475(f) of the Internal Revenue Code. The deadline is stated clearly in IRS Publication 550 (tax year 2025): “To make the mark-to-market election for 2026, you must have filed an election statement no later than the due date for your 2025 return (without regard to extensions).” For most calendar-year taxpayers, that 2025 return was due April 15, 2026.
Apply the same rule forward one year for the open window. The election for the 2027 tax year is due no later than the due date of your 2026 return, again without regard to extensions.
Why Traders Chase Section 475(f) Treatment
If you don’t make the election, trading produces capital gains and losses. These go on Form 8949 and Schedule D and are subject to the limit on capital losses. If you do make it, you report all trading gains and losses as ordinary gains and losses in Part II of Form 4797.
Every position still open in the trading business at year-end is treated as sold for its fair market value on the last business day of such taxable year. Securities you hold for investment are excluded. You have to identify them in your records on the day you acquired them (for example, by holding them in a separate brokerage account).
What Your 2027 Election Statement Must Say
Publication 550 (tax year 2025) requires three items:
- That you are making an election under section 475(f)(1) or (f)(2). Securities traders use (f)(1). Commodities traders use (f)(2).
- The first tax year for which the election is effective, which here is 2027.
- The trade or business for which you are making the election.
Attach the statement to your 2026 return or to a properly filed request for extension of time to file that return on Form 4868. Here’s the trap: an extension gives you more time to file the return, but the election still has to be in by the original due date. A statement first sent with an October return is late.
New Taxpayers Get a Books-and-Records Shortcut
The IRS gives a narrow exception to anyone who wasn’t required to file a tax return for the prior year. That person can make the election by placing the above statement in your books and records no later than 2 months and 15 days after the first day of the year for which you intend the election to become effective. They still must attach a copy of the statement to your tax return for that year.
Retirees who file a return every year don’t qualify for this provision. For them, the regular deadline applies.
Form 3115 Comes Due When the Election Starts
Filing the statement on time is only the first step. If your current accounting method doesn’t fit mark-to-market, Publication 550 says you must switch methods under Revenue Procedure 2025-23 (or its successor). That procedure requires you to file Form 3115, Application for Change in Accounting Method, with “64” on line 1a.
The election is also hard to undo. Once made, it covers later years unless you get permission from the IRS to revoke it.
Year-End Moves for Traders Stuck With Capital Losses in 2026
Without the election, net capital losses offset ordinary income only up to $3,000 ($1,500 if you are married and file a separate return). Anything above that carries forward until it is completely used up and remains long-term or short-term.
Publication 550 gives an example. A married couple has a $7,000 capital loss and no other capital transactions. They deduct $3,000 on their joint 2025 return, and the remaining $4,000 moves to the next year.
Wash sale rules still apply to traders without the election, and an active December can trigger them without you noticing. In the IRS example, you buy shares for $1,000, sell for $750, and buy the same stock back within 30 days for $800. You can’t deduct the $250 loss. It gets added to your new basis, which becomes $1,050.
If you want a loss to count on your 2026 return, don’t buy substantially identical shares within 30 days of the sale. That includes the days after December 31.
Who Should File for 2027, and Who Shouldn’t Bother
The election only works if you’re actually in the business of trading. The IRS test requires that you seek to profit from daily market movements, that your activity be substantial, and that you trade with continuity and regularity. Publication 550 adds that “it does not matter whether you call yourself a trader or a ‘day trader.’”
Frequent traders who clearly meet that test, and who expect losses or mostly short-term results, have the best case for filing the statement with their 2026 return. If you buy and hold, live off dividends, or trade now and then, you’re an investor in the IRS’s eyes. For you, the statement adds paperwork and gets you nothing.
The election works in both directions: winning years become ordinary income too. A CPA can run those numbers with you before the 2026 return deadline.
Contact [email protected] for any questions or corrections.
Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
